Stress-free holidays require detailed planning – from goal-oriented investing to earmarking budgets for gifts.
Planning for a long holiday? Rarely is the decision to go on a holiday impulsive. Most people start planning for holidays a month or two in advance. If one’s holidays can be planned, then the finances required for the holiday ought to be planned too. This should lessen the anxiety associated with holiday costs.
Typically, evading financial planning for your holidays could mean spending more on the holiday. The actual costs may even be more than what could have been afforded. As a result, one may be paying credit card bills for the previous holiday, even as it is time for the next one.
In this context, a financial plan for your holidays is as important as planning the rest of the itinerary.
Travel fares have become much cheaper today. People no longer shy away from taking more than just the annual holiday. However, travel is one aspect of the trip. Others such as lodging, boarding, eating, shopping for memorabilia and gifts will invariably increase your holiday budget.
The first step would begin with determining the total budgeted cost of your holiday and putting it down in writing. This figure should be the amount the individual wishes to spend in the context of his personal finance. Once these figures are put on paper, and it seems too high, one could adjust. Also, one needs to take into account his personal debt and the kitty in his emergency fund. If it is low, then one either needs to take a low-budget holiday that year or, in dire situations, drop the plan totally.
Still going ahead? The total cost can be broken into components like travel, lodging and shopping. Special expense limits may be assigned per family member.
While on a holiday, avoid the temptation to shop with a credit card. Especially , when the item costs beyond the budget worked out by you. If a particular item cannot be afforded, it is better to look for something less expensive. Using credit cards while on an international trip will mean paying in foreign currency (depending on the exchange rate at the time of usage) and a mark up charge of almost three per cent for the conversion.
The second step is to gauge the resources available for the holiday based on its time horizon. The deficit, if any, will have to be worked out and has to be broken into a monthly saving pattern. This method will help to ease the burden of the holiday spend over a longer period. It has been observed that holidays generally coincide with the time an individual receives his bonus from their respective jobs. But, this is not the ideal strategy. Especially, if you are planning the holiday, ahead of receiving the bonus. It may result in the individual having to compromise on his holidays if the bonuses don’t turn out as expected!
SAVING FOR THE TRIP
A prudent planner would invest his monthly savings in defensive instruments like short-term debt funds. These funds could yield returns of four to five per cent, post-tax, which would be reasonable considering the yields on the savings account. Bank recurring deposits (RDs) are another good option at this point, when on account of the high interest rates, one year RDs are yielding close to nine per cent, pre-tax. For people planning international vacations, which may be two to three years away, monthly income plans offered by mutual funds are an excellent option. These funds, being debt-heavy, with a small exposure to equity, should help investors reap better tax-effective returns over a longer time frame than debt funds.
Most people have enough shopping to do even before they leave on a vacation. Shopping at the last minute will tempt shoppers to purchase higher priced items, without comparing and looking for a better bargain.
Budgets for holidays will depend upon the location. But, even if you plan to visit the same place, your budget is likely to go up because of inflation in holiday expenses.
If one has used credit cards to make purchases,then repayments should be done at the earliest. Else, you would end up paying high interest charges on it.
One major cost factor in holidays are the gifts distributed to near and dear ones. These should be made an integral part of the holiday plan.
Holidays are a good stress buster in today’s work environment. Financial planning for holidays can only help in making this stress buster work better.
The writer is a certified financial planner