How do you plan your vacation and why is it important to plan

Updated: Oct 9 2013, 23:25pm hrs
TravelWhen you do not plan for your vacation in advance, you find that you are not able to get hotel reservations. Reuters

Taking your family on a vacation is one of those special moments which will be cherished by you. It is therefore important to make it memorable by planning for it well in advance. When you do not plan for your vacation in advance, you find that you are not able to get hotel reservations and you have to shell out a hefty sum for travel and accommodation. There are several benefits of planning your vacation well in advance. Let us first look at the financial aspects of how to plan your vacation. Here are a few things you must do when you plan your vacation:

Estimate the budget after you finalize the destination and dates: The first step is to determine your holiday budget. This is possible only when you finalize where and when you want to holiday. Vacations abroad are extremely expensive, especially now with the rupee depreciating. It is therefore very important to decide your budget at present costs considering all the relevant factors.

Find out how many months or years are remaining for your vacation: The next step is to determine how much time you have left for your vacation. Although small budget vacations do not require years of planning in advance, when you wish to take a foreign holiday, it is always better to determine a few years in advance. Some families also decide to holiday abroad once in every five years or so. So you must establish the number of months or years you have left for your vacation.

Inflate the present cost based on the time left: Once you have decided how much your trip will cost you in present day terms and also the number of years or months left for your vacation, you must inflate this cost to get the approximate amount you will be spending on your holiday. Remember that inflation plays a crucial role in all financial planning, and also holds good for your holiday budget. Assume a realistic inflation factor based on past and present times to determine how much your cost of vacation will increase, compared to the present.

Find out how much you need to save monthly to collect that amount: When you know the amount of travel corpus you will need, work backwards to determine the amount you will have to save every month. To do this, you will also have to assume an expected rate of return you will earn on the amount you save.

Choose suitable investment avenues to invest: This step goes hand in hand with the previous step. The expected returns vary with the kind of investment you make. For example, equity investments give you better returns compared to debt instruments and are best suited if your vacation is planned more than 3 years from today. As these investments give a high return over the long term, the amount you need to save on a monthly basis is also lower than when you invest in low yielding investments. On the other hand, if you plan for a vacation in the short term (ie: less than 3 years from today), it is better to opt for the safer debt instruments. However, this will give you a lower return, and as a result, you will have to save higher on a monthly basis.

Encash your investments before your vacation: Planning and investing for your vacation is not sufficient; you should also ensure that you encash your investments in a timely manner. Sometimes, equity investments can become risky if you do not encash it till the last minute. It is always better to partially shift to safer debt investments as you approach the vacation date.

The above steps must be followed when you plan financially for your vacation. If you do not plan in advance, you may end up taking a personal loan or will have to dig into your savings to fund your vacation. These are not financially prudent measures and will have a negative impact on your personal balance sheet. Once you decide on your savings and investments, you must begin your bookings and planning atleast 6 months in advance to get various benefits. Lets briefly look at both the financial and non-financial benefits of planning your vacation in advance:

If you book in advance, you get confirmed bookings and do not have to run pillar to post searching for accommodation or arranging for excursion tours. You also get the accommodation of your choice and comfort. You get better prices on hotels and flight bookings, thus resulting in lower expenses. If you scout various travel websites, you can also clinch good bargain deals and packages. The money you save on all this can be used on extra goodies during your holiday. You also have the time to understand all facets of the destination beforehand, thus ensuring you do not waste time when you get there. When you plan in advance, there are lower chances of missing out on things to take along with you. Last but not the least, there is a lower strain on your finances as you would have planned for the vacation by saving regularly every month.