Planning a dream vacation? Make sure you get your financials right before you set off on your holiday, suggests Anil Rego, cEO & Founder, Right Horizons
Every once in a while, we dream of taking a vacation all by ourselves to unwind, relax and rejuvenate. Priya, who works in a leading software firm, had dreamt of the day when she could take a break from her hectic work and family schedule to travel to some exotic location, indulge in some much-needed retail therapy and sightseeing without having to worry about dipping into the family savings too much. And travel she did. With just a little financial planning and budgeting in advance, Priya enjoyed a holiday of a lifetime. And she is already thinking about her next holiday with her family. Like Priya, if you are planning a holiday by yourself, here is some good news for you. With just the right amount of research and budgeting, planning a dream holiday—whether in India or abroad—is not only affordable but also possible, even under the current economic weather. Firstly, work to get the financials out of the way and before you know it, you could find yourself living your dream vacation on an amazing Caribbean Cruise, skiing down the Alps or exploring Scotland’s natural beauty.
Here are some key points to remember while planning a vacation. Most of this advice applies to solo vacations as well as family holidays.
Plan in advance
The typical holiday season is when most people think of taking time out for a family vacation. While holidays may be the best time to plan for a vacation with the family, it could turn out to be an expensive affair considering the peak season costs. However, if you are planning a solo holiday, this need not be a cause for worry as travel plans can be made for the off season months too. Last-minute planning is one of the costliest and commonest mistakes that we make. Planning ahead will ensure that you get the best deals on travel and accommodation. Travel fares usually go up closer to the date of travel, so plan your trip well in advance to get the travel fares and accommodation that fits your budget and style.
Set a specific goal
Priya started planning for her vacation with a specific timeline of one year. She set aside a budget of one lakh rupees and worked backwards to find the right travel and accommodation. Setting an upper limit on the budget makes it practical to plan out the various aspects of the holiday. With a clear-cut budget, a holiday need not be a one-time event, but can be recurring. For example, you may like to go on a holiday every year with your family or by yourself and plan to spend one lakh every year on vacations.
Check your savings and investment
Once you have decided on the budget along with the time frame, the next step is to plan on how to achieve the required amount. In Priya’s case, her vacation need was after one year and she required an amount of one lakh rupees. However, considering that the cost of travel, food and other expenses would increase every year due to inflation, she also had to account for that. Assuming an inflation rate of six per cent, Priya would need approximately # 1.05 lakhs after one year, post-inflation.
It is always advisable to start saving for your needs well in advance. Since Priya knew that a year from now, she would need # 1.05 lakhs to meet her needs, she started saving early on. It is important to remember that the amount saved can also be invested in different avenues in order to earn interest/returns on the same. However, where to invest should depend on the risk appetite and the time horizon, which was a year in Priya’s case. Since she needed the money after one year, it was not advisable to invest the same in avenues which have high risk, so she decided to invest in Liquid/Debt Mutual Fund schemes which give around 8-9 per cent returns (pre tax).
Thus, considering a return of 8 per cent, Priya needed to save and invest # 8,400 every month, which would then help build the required corpus for her vacation expenses.
Plan for long term vacation needs
In order to save and generate a higher corpus for the long term i.e. 3-5 years ahead, Priya also invested in Equity Mutual funds via Systematic Investment Plans (SIPs). A SIP will help to generate higher returns over a period of time and will take care of the vacation or any needs which might crop up in the next 3-5 years. But, one should consider investing in equity only for long term needs. If the requirement is in the short term, then consider investing in liquid funds. SIPs are the simplest way of generating higher returns and corpus over a period of time. They help in generating higher corpus by the principle of compounding (interest/returns helps in generating returns) and lowering average purchase cost in the long run.
Note: The above funds are only for the purpose of comparison and should not be considered as an investment advice from Right Horizons. Investment in mutual funds depends on one’s Risk Appetite.
Check on budget and stick to it
One of the most crucial steps is to check on the budget for the required amount of savings. Priya has a monthly net salary of # 50,000, out of which she needs to set aside # 8,500 every month to save for the vacation. After setting the required amount, she had to make sure that she has sufficient buffer to be able to take care of her monthly household expenses. As far as possible, try to stick to your budget. It is easy to get carried away while you are in the holiday mood and you could end up spending more than you budgeted for. Priya did her research on local restaurants and shopping areas that were less frequented by tourists and ended up saving a lot of money.
Plan for emergency
Budgeting while on vacation is also as equally important as budgeting to save up for the trip. Suddenly realising in the middle of your vacation, that you have insufficient funds to cover your expenses can entirely ruin your holiday. Even if you book an all-inclusive package trip, your holiday budget should include enough funds for an emergency. Emergencies do not come with prior intimation, hence you need to be prepared. An unforeseen situation can have a financial impact on one’s family. For instance, one may fall sick during the trip due to unsuitable weather conditions or one may miss the flight due to unavoidable reasons. In such situations, it is always advisable to be prepared with extra funds to cover the costs.
Note: As an extra measure of caution, Priya also opted to have a risk cover for her travel. A risk cover option for the travel will provide you utmost protection against unseen medical and non-medical emergencies.
Vacations are meant to be stress-free. With just the right amount of planning—especially the financial part of it—you can make the most of your vacation, confident of planning your next trip with ease. Remember, when you ‘fail to plan, you plan to fail.’
