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How to manage your holiday expenses effectively

Try to create a permanent corpus for your annual holidays with regular investments every month.

With temperatures soaring new highs and schools closed for summer vacations, it’s time for many to head to the hills or fly to an exotic offshore destination. While vacations are the perfect opportunity to take a break from our hectic lifestyles and spend some quality time with the family, we need to ensure we keep the post-vacation financial stress at bay. Here’s how you can enjoy the perfect holiday without burning a hole in your pocket:

Plan early to reduce costs: Early planning and budgeting for your vacation helps in effective management of your holiday expenses. Planning early will also allow to book tickets and hotels at lower prices. Start by preparing an estimate of various travel heads like hotel spends, air travel, dining and shopping. Figure out your budget and try to make necessary adjustments in various expense heads in case of a shortfall. However, never use your emergency fund or long term investments to fund your vacation.

Build a holiday corpus by investing in debt funds: If you are struggling with funds, try to build a holiday corpus in advance. Take the help of SIP calculators to determine the monthly investment required for building a holiday corpus. Opt for SIPs of ultra-short term debt funds if the desired vacation is just 3–12 months away. Ultra-short term debt funds carry very low risk and can be expected to generate returns in the range of 7–9% p.a. Opt for short-term debt funds or income accrual funds if plan to take a trip after 12 months. Apart from generating higher returns than bank fixed deposits, they are also more tax efficient for people falling in higher tax slabs. Building a holiday corpus is particularly helpful to travel enthusiasts as they can finance their frequent travels, without disturbing their finances too much.

Avail premium travel credit cards for domestic tours: Most credit card issuers issue travel credit cards that offer free access to airport lounges, attractive air travel, hotel vouchers, and higher discounts, cashbacks and reward points on hotel stays, dining and air travel. Some premium credit cards also offer complimentary tickets on spending beyond a particular threshold within a period. These cards can bring down your vacation costs significantly.

Compare credit options before availing a loan: Though it is not advisable to take a loan to fund a leisure trip and you should manage it through your own funds, sometimes travel becomes unavoidable, like in case of an outstation family wedding. Availing a personal loan is the most convenient solution in such cases, as the documentation process is very simple and loan disbursal is usually completed within a couple of days. Interest rates on personal loans range between 10.99% and 24% depending on your monthly income, employer, loan amount and repayment tenure. However, do not apply for personal loans with too many banks within a short period as this will reduce your credit score. Instead, visit online comparison platforms to find the best personal loan offers and compare them with the ones offered by your primary banker and credit card issuers.

Use prepaid forex cards for offshore transactions: Using debit cards and credit cards for offshore transactions can prove to be a very costly option. Every time you swipe your card at offshore POS terminals, they charge foreign currency mark-up charge of up to 5% of the amount transacted. As the money used through credit or debit card is in Indian currency and the overseas transactions are made in the local currency, fluctuations in currency exchange rates can also push up the final cost of transaction. Prepaid forex cards offer the cheapest way of carrying and transacting money abroad. These cards do not charge foreign currency mark-up fee on online and POS transactions. As the currency exchange rate is already locked while loading money into them, they save you from the risk of fluctuations in currency rates. These cards also offer attractive reward points, discounts and other benefits on shopping, dining and lodging.

However, avoid using forex prepaid card of a particular currency to pay for goods and services in another currency as it will cost you currency conversion charge. For example, if you use a forex card loaded with US dollars to pay in Thai Baht, the card issuer will charge relevant foreign currency mark-up on that card transaction. Instead, use multi-currency forex card if you are visiting two or more countries with different currencies.

Strong financial planning will ensure you enjoy your holiday without imposing a heavy strain on your finances. Try to create a permanent corpus for your annual holidays with regular investments every month. This would save you from incurring high interest cost for financing your leisure.

—by Naveen Kukreja – CEO& Co-founder, Paisabazaar.com

( Source : deccan chronicle )
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