Blame it if you will on Bollywood movies, but for many of us, going on a vacation abroad is a dream. Whether it is Shah Rukh Khan and Kajol romancing in the English countryside or more recently Deepika and Ranbir having the time of their lives in Corsica, foreign vacations are definitely on our wishlist. But then traveling abroad is expensive and if you are telling yourself you will never have enough money to plan a trip abroad, you are wrong. Some back of the envelope calculations and planning in advance can make a foreign trip possible. We tell you how.
- Think of your holiday as any other financial goal: Foreign vacations cost a lot of money. Air-tickets itself will cost you a lot. Other expenses, to be paid in the currency of the country that you are visiting will also work out to be substantial. For example, a holiday to a South East Asian country for a few days can cost around Rs 50,000 for a single person. A trip to Europe for a week could cost up wards 1.5 lakh per person. What this means is that a holiday abroad is a big ticket goal, a lot like buying a car. So it needs to be planned for financially as it is not something you can do out of your current income. Also unlike cars, you cannot get a low cost loan to fund your holidays. When you buy a car you buy an asset and the bank has a right to that till you pay off your loan, but a holiday being an unsecured asset, you will have to pay a higher rate of interest if you take a loan.
- Decide where you want to go: Getting a fix on the destination and the number of days will give you can idea of how much it will cost. All of us have dream destinations and places we want to strike off a bucket list, so this should not be difficult. The only thing to remember here is that you need to be realistic. If you have pot loads of money, in which case you will not need to save for a vacation, you can afford a luxury trip to the South of France or fortnight in Miami. Otherwise, like it or not, the kind of trip you want to do has to be in line with your budget.
- Know how much it will cost: If you plan to do a Europe trip, you might want to do a few countries over a week or cover majority of Europe in a fortnight. Holidays to South East Asian countries will cost you lesser, while a trip to the South Americas or New Zealand will cost you on the higher side. Costs will also depend on other factors like accommodation you choose and so on. Planning a trip on your own will save you a lot, but traveling to a foreign country on your own can be difficult, so it is better to choose a tour package when on your first time visit. You can choose from a host of tour operators, and going to their websites and checking out package costs will give you a fair idea how much it will cost.
- Factor in additional expenses: Even if you are going on a package tour, a lot of additional expenses need to be borne. Some of the meals may not be covered. In certain cases you might have to pay extra fees to do optional tours. You may have to pay porterage charges and tips. You will also want to shop or get souvenirs for people back home. These could add up to a substantial amount when converted to a foreign currency. Get an estimate of these expenses and add them to your total trip cost. Adding this to your trip costs will give you can idea of how much you will actually spend on the trip. In fact, your vacation costs are likely to go up by 10 per cent every subsequent year, so you should factor that in as well.
- Figure out how much you can save every month: This part is a budgeting exercise. List down all your expenses and other payments you need to make like insurance premiums and EMIs and the money that you invest every month and arrive at a total figure. Deduct this amount from your total income and arrive at the surplus. If your finances are not in a mess, in which case you might have to postpone a holiday till you get them sorted, this would be a positive figure. Let us say that this figure is Rs 10,000 a month. If your vacation costs Rs 2, 50,0000, you would need a little over 2 years to save for it. If your vacation costs more, then the time you need to save the amount will go course go up and vice versa. So now you have an idea of the approximate number of months you would need to save money to make your vacation possible.
- Add that extra bit of savings: Small expenses add up. If you are really serious about a holiday and want to do it as soon as possible or maybe include more places of visit in your itinerary, you would need that amount of extra money. Find out how you can save that. Take a look at your budget and see if there are any places that you can cut down on. These expenses are called discretionary expenses and would include those expenses that can be done away with if needed. So eating out, watching movies, buying that very expensive gadget, all come under this head of expense. Spending money is always a give and a take thing, if you are not spending on something, you can spend on the other thing that is more important to you. The amount may be as low as Rs 200 a day but saving that for a month helps you save Rs 6,000. For 2 years that adds up to Rs 1,44,000 and that is quite a lot. Take conscious decisions to cut down on expenses that you can actually avoid and put that in your holiday fund.
- Estimate how much of existing savings you can spend on your holiday: This bit is simple. Do you already have some savings you have earmarked for your holiday or some savings you wish to spend on your holiday? If yes, then deduct that amount from your total requirement to arrive at the money you need to save. As an example, suppose you have to save Rs 5 lakh for a holiday and you already have Rs 1 lakh from your last year’s bonus that you can spend on it, you would eventually need to save Rs 4lakh.
- Start saving accordingly: Now that you have figured out how much money you will be saving every month for your holiday, where do you save it? If you let it lying in a bank account it earns very little interest, while investing in a mutual fund is risky because you have a short investment horizon of 2-3 years and you may end up losing value on your investment for all you know. In such a situation, you can start a recurring deposit. Here you can have an ECS facility where the money will be debited from your account automatically every month. Recurring deposits give you an interest between 7- 7.5 per cent. So if you do a recurring deposit of Rs 10,000 per month for 7.5 per cent interest for 24 months you have a maturity amount of Rs 2,59,552. You earn an interest of Rs 19,552 and also ensure that your corpus stays protected.
Planning in advance is important for all life’s goals and dream vacations are no exception. After all life is short and there is a whole world to travel!