Take into account your travel plans while strategising your investments, so that you can allocate a dedicated fund to fulfil travel goals and do not end up withdrawing money from your other investments
Keertida Kelkar, a 45-year-old resident of Pune, is currently making plans for her year-end family trip to Japan and a short excursion to Darjeeling in November this year. As the festive season unfolds, Kelkar and her family are eager to seize the opportunity to visit their dream destinations.
While Kelkar has diligently managed her investments thus far, she now finds herself in a quandary when it comes to funding her travels. Given their passion for exploring new places, she is determined to strategise her investments with the goal of creating a dedicated travel fund.
Kelkar says: “I am keen on establishing a travel fund that can cover all our travel expenses and enable me to accumulate substantial savings for our adventures.”
Incidentally, many millennials prioritise travel over other financial goals, such as buying a car, saving for a home, or even investing for retirement.
So, here’s a guide on how to save money for your trips.
Establishing a dedicated travel fund offers various advantages. By having a sufficient reserve of funds, you can secure favourable deals instead of accumulating debt or resorting to more expensive last-minute bookings.
Arijit Sen, a Securities and Exchange Board of India (Sebi)-registered investment advisor and co-founder of Merry Mind, a financial advisory firm based in Kolkata, highlights the significance of establishing a travel fund as a recurring household goal. He says that randomly making travel plans and dipping into existing investments to finance these trips is an unsustainable approach in the long term. Sen suggests that a prudent strategy involves pre-planning vacations to avert financial challenges.
“Determining the number of annual vacations you desire and setting a rough budget for each trip can serve as a starting point for achieving this recurring goal. Once you have calculated the total amount required for your travel fund, devising an investment plan becomes more straightforward,” he says.
Sen recommends several methods for funding this goal. Salaried individuals may choose to utilise their quarterly or half-yearly bonuses. Alternatively, a common approach is to set aside a fixed amount on a monthly basis to build the travel fund. The choice of suitable investment products should also consider factors, such as one’s ability to tolerate market volatility, investment time horizon, and prevailing market conditions.
Since travel is typically a short-term goal, Sen suggests exploring debt products within the investment space. Within the realm of debt investments, options such as a standard bank recurring deposit, a flexi bank deposit or a systematic investment plan (SIP) in a mutual fund can be considered to construct the travel fund effectively.
Anant Ladha, founder of Invest Aaj For Kal, says that the initial step in saving for your vacation involves determining the required funds. Whatever your estimated figure is, it should be increased by 15 per cent, and then you can start planning for it, he says.
“Once the final amount is determined, you can consider investing it, either through an SIP or a lump sum investment, depending on your cash flow. These investments can be directed towards various options, such as a floating interest fund, a short-term debt fund, or a fixed deposit (FD),” says Ladha.
“At present, small finance banks are offering FDs with interest rates of up to 8.5 per cent, which is quite appealing. Moreover, the credit risk associated with such FDs is mitigated by the DICGC (Deposit Insurance and Credit Guarantee Corporation) cover, which provides protection of up to Rs 5 lakh, including both the interest and principal amount,” Ladha adds.