From the time you begin planning your vacation till the day you depart, every single day is fraught with anticipation and excitement. The only party-pooper in the process is the thought of expenses, which is enough to give you many a sleepless nights. Since holidays, especially ‘vacations abroad’ have become more within reach, [unlike few years back] you have to dig deeper into your pockets than ever before.
The solution to this problem is to plan for it in advance. Include a vacation in your goals and cash flow statement every year so that you know exactly how much you need to save for that fortnight of bliss.
How to start
It means deciding how much you would like to spend; without a budget, you wouldn’t know how much to save. Worse, you stand the risk of going overboard with your spending on sightseeing and shopping. Given below is an illustrative list of items you need to include while preparing your vacation budget:
The main expenses
Tickets; visa; travel insurance; hotel; transportation; daily expenses like food and drinks; sightseeing; shopping, which includes gifts for loved ones; contingency fund.
Clothes; bags [if your old one needs replacing]; shoes; toiletries; medicines; other expenses depending on individual.
All of the above could easily add up to INR15,000 – INR20,000.
List both type of expenses. And also the amount you would like to spend against each. Many of these expenses are variable and with a little scouting around, you’ll be able to find good deals and reduce the overall outflow.
Factor in at least a five per cent hike in expenses on your overall amount to avoid being in a lurch by last-minute surprises.
NOTE: Make this budget right at the start of the year. This will help you fix a ballpark figure in advance, making it easier to scout for destinations that fit in your budget and give you ample time to find the best deals.
Once your budget is set, the next step is to figure out how you’ll save.
How to save
Before you do anything else, open an account specially for vacations where you keep aside money just for your trip. Or, set aside funds and christen them as vacation fund. Do not touch this fund other than for emergencies.
If you’re planning to take a vacation in a year’s time…
The best option is to invest in debt products.
If you have a lump sum to start with, invest in the following options:
- Fixed deposit: Depending on when you plan to take a vacation [such as summer or Diwali holidays], you can invest in a short-term fixed deposit [FD] that matures around the time you plan to go. For instance, an FD for six months, 16 days or nine months. Even though the returns aren’t so good, your money is protected from the risk of capital erosion and you’ll have easy liquidity.
- Liquid mutual funds: You can select a liquid fund or ultra short-term fund to park your money for say 4 – 5 months. In the current financial scenario, you will earn decent returns. But again, remember that these returns are variable. However, these funds will give you easy liquidity and the mental satisfaction of investing your money well.
- Fixed Maturity Plans [FMPs]: These offer a variety of tenure options—90 days, 181 days, 13 months, 18 months and the like. The drawback is that you get the money only on maturity, especially in the case of short tenure FMPs. But again, the rates are better than fixed deposits and liquid funds.
Those planning to go on a vacation in a span of 6 – 8 months, but do not have a lump sum to invest, should open a separate account and save money every month in it. This will ensure that you won’t spend from that account.
If you are planning a vacation after a year but within three years…
First thing to do is factor in inflation for every year till the time you plan to vacation. This is important as expenses increase not just every year but every quarter. In addition to the above-mentioned saving instruments, you can invest in:
- Savings account linked to fixed deposit: In this, beyond a certain limit [generally `10,000] the money in your savings account gets automatically locked in a fixed deposit for one year [or for the duration you specify]. This fetches better rates than normal savings account. Plus you can withdraw the money any time you want.
- Monthly income plans [MIPs]: These invest 80 per cent – 90 per cent in debt and the balance in cash and equity, thereby giving the safety of debt with a decent hit of equity. In fact, you can even opt for a Systematic Investment Plan [SIP] of monthly or quarterly frequency under this option.
- Balanced funds: You can opt for a good debt-based balance fund where at least 60 per cent is invested in debt and the balance in equity. This option is riskier than MIPs and is recommend only for individuals whose goal is more than two years away.
If you’re planning a vacation in five years/post-retirement…
- Equity: Investments in equity give good returns in the long term, which definitely beats inflation. Since it is for a specific goal, I recommend investing in a good diversified equity mutual fund as it takes away the hassle of regular monitoring; your money is diversified and managed by professionals. Another advantage of a mutual fund is that you can opt for an SIP, which instils a disciplined investment approach.
- Book your tickets in advance to get huge discounts.
- Scout for good deals on hotels and accommodations [check for rates on the hotel’s official website; it’s generally cheaper than what an agent offers].
- Get a travel insurance much before you leave to help you tackle emergencies.
- Plan your itinerary yourself rather than relying on an agent. It’s cheaper and immensely satisfying. You can save more money by booking your sight-seeing when you reach the country instead of booking from India. The travel desks of hotels in the city you are visiting have lots of options that prove to be less expensive.
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