Plan your holiday well in advance and save for it too, so you won't have to compromise on the fun.
Save in Advance
When to start saving depends on how much you need for your holiday as well as your income.
Save a part of your salary every month. But don't just accumulate it. Put the money in fixed deposits or recurring deposits where you can upto 9%.
"Avoid last minute holidays. Ideally, you could start saving about eight to twelve months in advance," says financial planning expert, Kartik Jhaveri.
If you are planning on taking a fancy holiday, you could even start saving three to four years in advance. In such a scenario, investing money in diversified equities would do you good. This way you can earn on the amount you put aside.
"Put away money in a Systematic Investment Plan (SIP) for about four to five years. It would help you earn about 12% to 16% on an average," Kartik advises. You would be able to have a far better holiday this way than if you simply kept the money in the bank.
Never Dig into Savings
Savings are an essential part of financial planning. All your savings should be directed towards specific goals. So you cannot eat into your daughter's wedding fund or your home fund for a holiday.
"Holidays are a luxury. You can well do without taking one. So don't even think about breaking fixed deposits and other desperate measures," says financial advisor, Gaurav Mashruwala.
Credit card loans have become popular these days. But you land up paying a rate of interest of 38% to 40%.
Travel Loans are a Strict No-No
Travel loans are designed more to help travel companies make money than for the consumer.
As enticing as a travel loan might seem you need to figure out whether it is really economical for you. "If the rate of interest works out to more than 11 to 12% per annum, it is not worth taking the loan," Karthik Jhaveri explains.
Say you are taking a loan of Rs.60, 000 for your holiday. Your EMI is Rs.5, 000 per month and your loan term is 18 months.
EMI × Loan Term = Total Amount
5, 000 × 18 = 90, 000
Therefore, once you have paid up your loan, you will have paid Rs.90, 000, not just the Rs.60, 000 you borrowed. The interest on the loan is Rs.30, 000.
Principal × No. of years × Rate of Interest = Interest
100
60, 000 × 1.5 × Rate of Interest = 30, 000
100
Rate of Interest = 33.33%
Therefore, opting for such a loan is not worth it.
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