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A 4-step approach to plan your vacation - Outside View by PersonalFN
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A 4-step approach to plan your vacation
Sep 5, 2014

Over the last few years, the cost of living has risen exponentially. Let it be anything from groceries and other household expenses to a holiday package, everything has become more expensive than what it used to be. Moreover, life has become extremely busy and fast paced these days. To de-stress and take time out for themselves, a lot of people prefer going for a holiday with their families. While going for a vacation is a great idea, it is important to ensure that you don't put your future in jeopardy for some moments of enjoyment at present.

Your wish-list may have some top international holiday destinations such as Maldives, Madagascar, Europe and America among others. But it is imperative for you to consider expenses associated with trips to such destinations. Today, even a domestic trip to destination such as Kerala and Kashmir costs you pretty penny if you want to experience luxuries in stay and travel.

We have listed down steps that can help you to plan your holiday, without hurting your financial well-being.

  • Finalise the destination and estimate your budget: You see, in order to live a stress free financial life, it is important to plan your vacations well in advance. Discuss with your family to fix on a suitable holiday destination and figure out an appropriate time to travel. Calculate the approximate amount that you are likely to spend on your vacation. Ensure that apart from travelling and accommodation, you also include food, sight-seeing, travel insurance (if needed), shopping, taxi or bus fares for within the city travel etc. while calculating your vacation expenses. Also include a reasonable amount that you would need as buffer in case of emergencies. Remember that, if you try to book air tickets at the last minute, they might cost you a huge sum (sometimes even double) than the normal airfare. Moreover, all hotels and resorts in famous holiday destinations increase their tariffs during peak seasons. Those who plan in advance may benefit from the early bird offers and discounted rates.

  • Determine the amount to be spared each month: Merely planning tours in advance may not be enough if you want to make your trip affordable. After calculating the total expenses, you must determine the amount that needs to be saved each month. Make sure you assume a reasonable rate of return and probable inflation rate while determining your monthly investment installment. You see, the costs associated with trips are rising each year. Hence if you have made your travel budget keeping in mind current costs, and you want to travel after 2 years, it is necessary to inflate your estimate budget depending upon the rate of inflation. Otherwise, you might be in for a shock while holidaying and might fall short of funds. In case your monthly household expenses don't allow you to save enough for your vacation, start reducing your unnecessary expenditures. Consider going to your dream holiday as one of your financial goals and start saving systematically towards it.

  • Choose suitable investment avenues: Depending upon the time remaining for your trip and your risk appetite, determine your asset allocation pattern and choose suitable instruments for investing. As you know in order to counter inflation and to earn desirable returns, investing your savings is extremely important. If you are 5 years or more away from your goal of holidaying at your dream destination, you may keep a larger percentage of your investments in equities. However, as this tenure reduces, you must start shifting your vacation investments towards debt instruments. If you are less than 2 years away from your goal, the entire holiday corpus must be invested in debt so as to avoid the volatility associated with equity markets.

  • Liquidate your investments on time: It is imperative that you liquidate your investments on time so as to use them effectively to meet the pre-set goal. Moreover, it is prudent to keep the vacation money in a separate bank account before going on a trip so that you don't land up spending more than what has been decided. Also, this will help you to keep a track of all your expenses.
Due to the immediate satisfaction that one gets by holidaying with their near ones, a lot of people go on a trip even while their finances don't allow it. PersonalFN believes that while going on vacation with loaned money may be tempting; it may be bad for your personal balance sheet. By planning prudently, you would not only finance your outings but would utilise financial resources optimally which may eventually help in your long term goal of wealth creation.

Every individual prioritises his / her goals separately. While some might consider buying their own vehicle important, for some others going on a family holiday might give more satisfaction and joy. Hence there is no fixed amount that every person should spend on a holiday. However, it is important that you don't compromise on your other long term financial goals such as retirement or child's education etc. in order to fulfil this wish of going for your dream vacation.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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