The travel and tourism industry was one of the worst affected sectors due to the Covid pandemic. Lockdowns across the nation and states meant travel plans took a backseat. However, things are gradually changing, and as states and countries open up their borders, people are looking forward to the much-needed vacation.
Finances are among the several things that you need to consider while going on a vacation. Holiday finance depends on several factors, including mode of travel, hotel preference, food, inter-city travel, shopping, etc. Prudent financing ensures that you don’t overstretch and enjoy to the fullest. So, how do you budget for a vacation? Let’s find out.
To finance your vacation, you need to consider certain aspects. Some essentials are:
Before arriving at a budget, you need to set your holiday plan. There are several layers to it, such as:
Are you travelling to nearby destinations or a well-known tourist attraction? Is your place of travel within the country, or are you going abroad? Answers to these questions will help you determine your budget. If you are travelling nearby or within the country, overall holiday finance is likely to be less compared to an international vacation.
Your budget will increase if you plan a long vacation and vice versa. With relaxation in curbs because of the pandemic, most people are contemplating a longer holiday with their family and loved ones.
If you are travelling in a peak season, chances are that you will find things expensive. However, if you are going in the off-season, you can make significant savings. Also, if you are travelling to an off-beat destination, your budget is likely to come down.
Once you have zeroed in on your destination, you need to calculate your vacation budget. You need to include multiple things in your budget, such as the cost of tickets (up and down), daily accommodation, local transportation, expenses on food, outdoor activities, etc. All these factors play a crucial role in budget calculation.
The next step in vacation finance involves investing in financial instruments. It will help you grow your money and ensure you have the required funds for your vacation. Investing in a mix of market-linked and fixed product instruments will help you accumulate the desired money you need to make your trip memorable.
When you choose to invest in a market-linked product, make sure to go for an instrument where the risk of losing capital is less. You can contemplate investing in liquid funds, for that matter. They invest in securities maturing in 91 days, thus bringing down interest rate risk. Also, you can quickly redeem when required.
Investing with the right mindset in the stock market can help you accomplish short and long-term goals, including saving for a vacation. You need to Demat and Trading account to do so. Opt for bluechip stocks that provide stable returns and are fundamentally strong. It’s in your interest to stay away from fundamentally weak stocks and don’t have a track record.
Opt for companies with strong balance sheets and corporate governance. Investing in such stocks will make sure your gains are protected if markets nosedive amidst volatility.
Investing via SIPs in mutual funds can help you finance your vacation with ease. Through SIPs, you invest a minimum amount of money every month in your chosen fund on a specific date. This amount gradually builds up into a substantial amount with time.
For instance, if you have planned to go on a vacation three years down the line, a monthly SIP of Rs. 5,000 in a fund offering annualised returns of 10% can help you accumulate a corpus of over Rs. 2 lakhs. Just like a stock, opt for a fundamentally strong fund that has given consistent returns in the long run.
To finance your vacation, you can also contemplate investing in ultra-short duration funds. These funds invest in debt and money-market securities with a maturity duration of 3 to 6 months. As they invest in debt securities with quick maturity periods, they are less volatile than stocks and equity mutual funds.
For a goal like accumulating funds for vacation, ultra-short duration funds can give you returns higher than a bank’s saving account. However, note that since ultra-short duration funds are market-linked products, the returns are not guaranteed. However, because of their product structure, the quantum of volatility associated with them is not high.
Balance Advantage Funds (BAFs) are dynamically managed mutual funds that automatically adjust the equity and debt composition as per market conditions. These funds augment wealth during a market rally and prevent gains from eroding when markets nosedive. In a nutshell, they help you bolster wealth during a bull as well as bear phase.
You can adopt the SIP route to invest in ultra-short duration funds and BAFs as SIPs instill a disciplined savings habit and keep you invested across market cycles.
Meticulous planning coupled with prudent investments can help you accumulate and manage holiday finance. An early start gives more time to your money to grow. It also gives you the flexibility to make the necessary changes, if required.
Open a Demat account with us and kick start your investments in the Indian stock market with ease.