You will not have to borrow
A vacation is a luxury, not a necessity. So do not holiday at the cost of savings meant for much more important goals. Similarly, do not borrow to travel. Banks can charge anywhere between 13% and 30% for a personal loan.You could land up paying stiff EMIs every month for three years for a fortnight's break.
Using the credit card to bear the holiday expenses is also a big no. While you could rack up rewards or get cashbacks, it makes no sense to pay an interest of 1845% by rolling over the bill each month. "Paying by credit card abroad means an additional cost for foreign currency conversion which can be a steep 1-3% per transaction," says financial planner Harshvardhan Roongta.
You will stick to a budget
If you set aside a separate corpus for discretionary expenses like holidays, you are more likely to ensure you don't overspend.
You can plan in time
A travel corpus means you have started planning early. This helps you get the early bird deals on tickets and foreign exchange and facilitates smooth visa processing. Booking hotels and tickets in advance can save you 13-15% of expenses you would incur by leaving it till the last minute.
You choose the right tool
Early planning helps you decide on the best investment instrument. For example, equity investments are suitable if your holiday is planned 3 years in advance. As these investments give a high return over the long term, the amount you need to save monthly is also lower. On the other hand, if you are planning for a vacation within a year, it is better to opt for debt instruments. However, this will give you a lower return, meaning you will have to save more every month.
In the last few months, travel firms like Thomas Cook and Kuoni-SOTC have launched schemes to help save for holidays. Kuoni India launched Holiday Investment Plan with Kotak Mahindra Bank and Thomas Cook launched Holiday Savings Account in association with ICICI Bank and IndusInd Bank.
According to the plan, you choose a holiday destination and save for 12 months in a recurring deposit account of the banking partner. The 13th instalment is either paid by the travel firm or is a combination of the interest accrued and a discount by the firm.
For instance, for a 4-day package in Dubai, you need to invest `3,600 a month. The bank will pay 7.9% as interest. The maturity amount will be `45,083 plus the 13th instalment of `3,600.
However, there are hiccups.You need to be sure about your travel plans a year in advance. In case you need two reschedule your plans, you will be accommodated only if a similar tour is happening at the same price.
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