Enjoying a fulfilling and fun holiday is always desirable, but ensure you don’t go over your budget. Financial planning can actually help you have no lingering sense of stress due to overspending.
With the number of Covid cases going down periodically, different countries are easing their border restrictions for tourists. Hence, people are planning for their holidays in the ongoing winter and upcoming spring season. Here we look at three mistakes you should totally avoid while funding your holiday.
You could be tempted to dip into your savings for a much-needed holiday break but it won’t be a wise choice. Instead, you could put that money in a bank or a fixed deposit or invest in mutual funds or stocks. Moreover, regular savings come in handy for your long-term goals such as a child’s future education or while paying down-payment for your house.
You need to save separately for travel. “See if you had invested especially for a holiday. If yes, you use that fund. If, just for a holiday, you break your investment which was for some other goal, then it is not financially correct. What is important is that you plan it well in advance. Going on a luxury vacation is fun, but just make sure it is not impacting your financial stability,” says Anant Ladha, founder, Invest Aaj For Kal, a financial planning firm.
Often individuals with regular earnings go for a personal loan for holidays. But holiday loans or vacation loans are usually unsecured loans with high-interest rate payments. “Personal loan is a permanent liability for a high cost and holiday is a temporary enjoyment. For just 10 days of vacation, you avoid taking a liability that will be troubling your next few months. Also, at times personal loans come at an interest rate of more than 15 per cent, which is too much of a burden,” says Ladha. When you take a personal loan with a high rate of interest, you might have to forget holidays for the next 3 years or take another loan to pay it off, which is worse.
This is perhaps one of the worst mistakes people make. Credit card bills not paid on time and rolled over generate interest of 36 per cent or more a year. There have been many instances of people having to live with the consequences of an impulsive holiday paid for by a credit card, for the next few years. “Credit card is worse than a personal loan. Here, the rate of interest is above 30 per cent and delay of even one day can mean exorbitantly high interest for the complete period,” adds Ladha. Suppose you go on a holiday to London and you buy your tickets through credit card, you should ensure you have adequate funds to pay back by the due date. Further, if you pay for a trip in a foreign country using a credit card, the spend gets clubbed with foreign transaction fees.
Holidays are exciting. Make sure you don’t turn them into a reason for your financial stress.