Budget Right For Your Dream Vacation

Budget woes stumped your holiday plans?  No worries… Priya Sunder shows you how to plan your finances for future holidays.
My husband was a sailor for many years before we were married. When his ship docked at Istanbul, he spent a balmy evening on the promenade overlooking the Galata bridge. So overwhelmed was he by the majestic Bosporus river, that he resolved right there to bring his bride to this paradise for their honeymoon.

Shopping Woes
When we did make it to Istanbul, almost a decade after our wedding, we walked to the Grand Bazaar. There, we were lured into an exquisite carpet shop. And an hour later, we emerged carpet in hand but with a significantly lighter wallet! Even now we marvel at how the glib carpet salesman swiftly blew our carefully planned budget over the Bosphorus! We cancelled our much-awaited, expensive river cruise and spent the remaining days in reduced comfort and currency.

Right Start
Needless to say, we underestimated our expenses and our desire to shop. If you’re planning a vacation sometime soon, it is important to build a holiday fund, and an adequate one at that.
The power of the internet enables us to scout for good deals – be it airlines, hotels, transport or other sightseeing attractions. However, what we often don’t plan very well are the funds needed for a vacation and the best way to build those funds. Here are some ideas for planning a stress-free vacation budget:

Real Story
It is important to come up with a realistic estimate of the expenses you will incur for your holiday –  be it towards accommodation, food, shopping or gifts. Create a buffer of 20% over this estimate to avoid shock when you overshoot your budget. Factor in cash flows while you are away. For example, you may save on electricity, newspapers, groceries, tuition fees etc while on vacation, but you may incur additional expenses on pet boarding, caregiving for ageing parents etc.

Check List
Create a dedicated travel fund. Start planning for your vacation at least a year in advance. If you’re planning an international vacation, you should start earlier since the expenses could be higher. Make regular contributions to this fund, preferably each month. Investing via a Systematic Investment Plan (SIP) into a liquid fund is a great way to bring discipline into investing. Money flows from your bank account on a particular day each month into the fund, enabling you to gradually build your corpus. Any surplus money in your bank account after monthly expenses can also be channelized upfront into this fund.

Plan Ahead
A liquid fund is a mutual fund with a risk profile and tenure similar to the bank savings account. It keeps your money safe and provides a higher return than your savings account. These funds invest in highly liquid money market instruments with the aim to provide easy liquidity. They have no penalty charges, and are more tax efficient.
The investment duration of liquid funds can be as short as a day, but provide good returns if held for three or more months. You can redeem these funds either through a physical application or online. Funds will typically be in your bank account within a day. Some fund houses provide an ATM card for easy withdrawal. The typical returns provided by liquid funds vary from 5% to 10% depending on the current interest rate scenario.

Bill Woes
Creating a dedicated holiday fund can prevent you from making costly mistakes like taking a personal loan with high interest costs. Such a cost will add to your overall travel expenses. At the end of your vacation, you will come home to a fat credit card statement, a bigger debt in the form of a loan, and a guilty conscience that you’ll be unable to shake off for a long time…
So, start saving from today to enjoy a fun holiday in the near future!