Financial planning for stress-free travel

The views and opinions expressed are of Mr. Arun Thukral, MD & CEO, Axis Securities.

There was a time when travel meant an annual visit to a relative in a different city or a pilgrimage to a renowned shrine. A holiday was regarded as a luxury to be indulged in only when the time and resources permitted. That time seems to be a distant memory now. 

Travel, today, has become a necessity, for some to disconnect and de-stress, and for other to satiate their wanderlust. Millennials, in particular, have become so passionate about travel that they plan their entire work calendar to squeeze in as many quick getaways and long holidays as possible. They regard travel as an opportunity to gain new experiences, discover new places and learn about new cultures. Though this trend is enabling millennials to expand their horizons, it is turning out to be a huge drain on their financial resources at the same time.   

The growth in the travel industry, with the availability of cheaper flights, affordable travel packages and reward programmes has lured several millennials into a debt trap. Impulsive travel booking leaves a huge hole in their packet which derails any savings and investment plan. The incidental financial repercussions often coerce a traveler to cut corners, compromise on experiences or, in few cases, postpone the travel. Given that millennials view travel as a key to their happiness, money should not become an obstacle in this pursuit. With a few simple tricks, anyone can manage their finances better to travel the world stress-free.

Plan in advance

For any endeavor to be a success, planning is the key, and travel is no exception to this rule. While the temptation of an impulse trip tends to be high, it is advisable to plan it in advance, especially if you are experiencing financial distress due to your frequent travel. Planning a few details will help you to enjoy your trip within your means. Start by defining the frequency of holidays that you want to undertake in a particular year. Shortlist the destinations that you would want to visit. Do a basic research to identify the hotels where you can stay, restaurants where you can eat and the activities you can indulge in. This will give you a fair idea of the money that you would require to fulfill your aspirations. If you feel that travel to a particular destination is stretching your budget, push it towards the latter half of the year or next year. This will give you enough time to accumulate funds for the same. This is particularly true of international holidays as domestic/budget travel does not require too much planning in advance. 

Tip: Priorities your travel. If an international trip is your preference in a particular year, push the domestic vacations for later.  

Invest wisely

By arriving at the amount that you need and the timeframe you have in hand, the next step would be to invest wisely. Indian travelers have started resorting to smart financial planning to pursue their travel goals. A spike of over 80% in the number of people consciously setting aside money for travel has been observed in the last 3-5 years, along with a 20% increase in the budget towards travel. To make your dream holiday a reality, start with selecting the right investment options to accumulate the desired sum of money within the available duration. As returns vary depending on the instruments that you select, it would be wise to opt for equity and related products if you are planning your vacation 3-4 years in advance. Use SIP calendars to calculate the amount of money you need to invest monthly in these instruments to arrive at the figure you want. Select debt instruments for the vacation planned within 3 years duration. As the returns are little less on debt instruments, you might have to invest a higher sum every month to achieve your target.    

Tip: Do not to splurge all your savings on a holiday. Build a separate holiday fund.  

Factor in inflation  

While planning for a holiday in advance, it is essential to keep in mind that the costs involved may not remain the same when the actual time to travel arrives. Factor in realistic inflation in your estimates to plan your finances accordingly. Considering inflation would also make you realize that adopting the fixed deposit route for financing your holiday will not be a wise move. Fixed deposits don’t yield inflation-beating returns but equities and mutual funds do. Hence, it is important to include these options in your investment basket.

Tip: Inflation eats into your savings if not invested in growth instruments. Don’t ignore its implications. 

Check out for deals and offers

Planning in advance gives you ample time to hunt for deals and discounts. Monitor various travel portals to identify deals that can help you bring down your total cost. There are various websites where you can compare the price of the same hotel room to book it from the cheapest source. Check if the hotel you opt for provides free pick up and drop to the airport. You can also look at converting some of your air miles to get a discount on your airfares. Tips from those who have been to your preferred holiday destination can also help you identify places where you can get best deals on food and excursions, apart from helping you to better prepare your travel itinerary. 

Tip: Read the fine print when opting for any discount and offer.   

Go for travel insurance 

When traveling abroad, travel insurance becomes highly crucial as any loss or health-related issues can cost you a lot in a foreign land. Apart from lost luggage and medical emergencies travel insurance can help you to claim your canceled or rescheduled flight fees. Travel insurance can make your whole travel experience stress-free. 

Tip: Go through the terms and conditions carefully to select the policy that works the best for you.   

Monitor exchange rates 

Another key consideration while planning an international holiday is the exchange rate. Any movement in the exchange rates has an impact on your budget. For instance, you plan a trip to Sydney, Australia estimating that you require 2000 AUD for the trip which comes out to be about INR 104,800 at the current exchange rate of 1 AUD = 52.4 INR. By the date of travel, the exchange rate moves up to say 1 AUD = 55 INR. This would mean that you now need INR 110,000 to foot your expenses. Such fluctuations can throw your budget off the track. A smart move would be to go for a prepaid travel card. They offer you the best rates and protection against fluctuations by letting you lock in the exchange rate before the trip. For expenses at the destination, prefer prepaid cards. If your bank offers free foreign transaction on your debit card, opt for the same as ATM withdrawals turn out to be a better deal than the tourist exchange bureaus. Use the ATMs of credible banks at your holiday destination for better rates. 

Tip: Be cognizant of the exchange rate and familiarize yourself with the price of common items as a benchmark.  

Avoid debt

The temptation to use credit cards is high to book an impulse trip or to indulge while on a holiday. Even to make bookings, credit cards are preferred for various benefits like reward points and discounts. While the use of credit cards cannot be ruled out due to the convenience offered, be mindful of the amount you swipe on your card. Use the card where necessary as repayment entails considerable expense in terms of interest rate and penalties on late payments. In case you do incur a debt for travel, make it a priority to repay the same. Any late payments attract a hefty penalty in addition to tarnishing your credit score. Do remember the due dates of all the credit cards at your disposal and make the payments ahead of the due date to avoid getting into a vicious circle of ballooning debt.    

Tip: Inform your credit card company of your travel plans so that they do not freeze your account when they notice any unusual spends. 

So next time you get that travel itch, remember that careful planning and research can enable you to embark on your next adventure without compromising on any other life-goal.   

Originally published in The Telegraph, Jan'19.