Last month, I was invited by 94.3 FM Radio one in Pune to talk on the topic “Upgrading your Family Vacation” as part of an investor education initiative by UTI called “Swatantra”
Below you can listen to the whole episode in a single audio file (24 min).
I had a great time with MJ Tarun, where he asked me a few questions related to Vacations and How to plan for it and I gave my answers to each question.
The whole episode was recorded and in total there were 10-11 questions that were broadcasted for 5 days in a week (2 questions each day).
In case you want to read those questions
For those of you, who want to read the answers given by me and not listen to them, we have re-written them in text format along with each question.
Question #1 – Do you see any similarity in Planning vacations and managing finances?
Yes, there are similarities. But to all the people who are hearing this talk, they will first think that managing finances and planning for vacations how they are the same things? But if you see both of them at a deeper level, you will realize that both of them need strong planning to get the best output.
Just like a person messes up their financial life by not planning for it, in the same way, if you do not plan your vacations, they will either not get the best experience or pay too much for output.
Just like there are good practices for living a good financial life, in the same way, there are some good practices to follow you are planning your vacations.
Question #2 – What are some important things we should do before leaving for a vacation?
I suggest a few things
Suggestion #1 – One of the things, I personally do and will recommend everyone is that whenever you are going for the vacation, it’s a good idea to always call the hotel and confirm the booking incase you have booked it from 3rd party websites like Makemytrip or Yatra. There have been cases where due to some miscommunication, people have been denied check-ins by hotels.
Suggestion #2 – The second thing is you should ideally buy a travel insurance if you are going for a longer trip (especially when you are going out of country).
Suggestion #3 – One more recommendation is to always check if the places you want to see are open on you day you will be in town or not. Many places are closed on some particular day and I have seen many tourists frustrated by the fact that they did not check the details.
Suggestion #4 – Another good idea to to check what all payments are going to happen from your account like your EMI’s, your SIP’s or any of your investments, and make sure that the money is available in your bank account, because a lot of times it happens that you don’t have balance in your account, you are not there, the bank is calling you and you know that is something you should take care of. That’s very important.
Suggestion #5 – You should also make sure you have some extra balance in your bank account like always have 20-30k extra amount because you don’t know when you will need some extra money on your vacation.
Suggestion #6 – And finally just make sure you have the Xerox copies of all you documents like passport, your hotel bookings proof, ID proofs with you and one copy at home also, so that if you lose them you can call someone back at home and use them.
Question #3 – Some financial tips for those, who are planning for a low budget vacation
It’s a very interesting topic. When we plan for a low budget trip we want to minimize our expenses wherever we can. However, my take on this is to not minimize the core attraction of the trip. Let me explain
Generally, we have 4 important expenses
On any trip, there is one thing which is the best thing about that trip. Some places, you get amazing food, while some places offer awesome experiences, some places give you a nice stay experience.
Whatever the best thing about your destination, you should spend on that and mercilessly reduce or cut down on other things, this is a good way to reduce your expenses and at the same time get the best out of your vacation when you are low on the budget.
Let me give you an example,
- If I am going on a Goa trip with my male friends, then I will not spend much on stay and experiences, because I know I will mostly be hanging out on the beach with my friends, enjoying local food and relaxing. So I will not restrict my expenses on food but cut down on everything else. I will stay on cheap beach shacks but enjoy the food at great places.
- If I am going with my family mainly to relax and spend quality time, then I will spend a lot on quality stay which has good facilities but would cut down on other things if I am low on budget.
And a few other things which you can do is go in the offseason if it is possible and try to book your tickets in advance, that is one way that you can save on the travel part. And obviously, you can search for some online deals there are many websites which give you very good deals. So these are a few more things that you can do.
Question #4 – Why do we even need to save for trips? We can use a credit card for that and it’s easily available these days.
That’s a Good point!. It’s a very important thing to understand for the younger generation who start their financial journey with credit cards these days.
One should understand that, If you are using a credit card or any type of credit to fund your vacation for once in a while (like once in 10 times) then it is fine. But what we have seen is now a day’s people are just living on credit without planning on how to pay back.
When you use credit, you consume first and pay later in the future.
So you don’t feel the pain of paying and this makes you spend more. This makes the expenses look small or you get a false impression that there is not much impact on your financial life due to that one transaction. People get into the pressure of spending because they see their friends and others enjoying and partying and if they do not have money in a bank account, it feels like they still have to pay capacity because of the credit card in their pocket.
There are various researches that have shown that this is how people get into a debt trap. This is how people start their financial life and then later after 5-10 years they get into a deep mess. people don’t realize this.
If you see most of the people who are deep into debt whose financial life is bad, If you track down their financial histories this is how they have started spending.
So don’t make it a habit. If you are using a credit card or loan, you also tend to overshoot your budget because swiping a card does not feel like paying. You don’t see money going out of your bank account like you feel when you pay by cash.
So yes, I would not recommend credit card in general, but if it is once in a while it is fine. Also, if you use too much of credit card or too much of credit, your CIBIL score also gets impacted and that is the very important thing nowadays for getting loans.
My comment does not apply to those who are super disciplined to make the credit card dues payment every month on time.
Question #5 – If I need my partners to help in saving for a trip, what are your thoughts about it?
We have mostly grown up in families where there was a single breadwinner (Father). But things are slowly changing. Now men and women both are earning equally and they both have their own bank balances and assets.
If one partner feels that the money for the trip should be spent from both accounts (husband and wife), then both the partners should share the expenses.
And if you are not married and you are going with your Girlfriend or Boyfriend, then obviously it depends on your equation with your partner, how comfortable you are and what you think about financial matters. And it depends on how much money do you need for going to that particular place. If it is a lot of money then I think both of you should contribute, it will be great.
Question #6 – What are the mistakes that we can avoid while making our investments?
If you see the goal of vacation it is generally a short-term goal in most of the cases.
It is not like a retirement goal or kids education which will come after many many years. So one of the most important things here is the liquidity of the money, whenever you need the money, money should be available.
So you should save your vacation money mostly in a debt fund or recurring deposit which is simple and gives you some basic return, but do not invest in products which are highly volatile or have a lock-in of few years, otherwise if you break that investment there will be a penalty.
Question #7 – If we think to go for a good, lavish vacation which investments do you think are ideal?
So, if this lavish vacation you are planning to go for is going to happen in the next few months or maybe after a year, you don’t have much time actually.
You need a lot of money for that. Either you have it already, you need to accumulate it every month. There is no conversation of getting good returns on that investment because you have no time.
So let’s say if you want Rs.1 Lac after a year, the best option for you is to save Rs.10K or Rs.8-9K every month and you should do it ideally in a debt mutual fund.
You can go for a debt mutual fund which is a great alternative to FD, tax-efficient and you will get a little bit more return than your FD. Or if you are not comfortable you can go with normal FD also, that is also fine.
I want to make another comment here.
Nowadays, vacations have become a very integral part of life and people are going on vacations every year or alternate years. One should have a dedicated fund only for the goal of “vacations”. I suggest that one can start a SIP only for this particular goal and use the money for vacations.
Question #8 – Can we invest a fixed amount every month and make it a habit for vacation?
Yes, you can invest a fixed amount every month in mutual funds, It’s called “SIP” or Systematic investment plan. Everyone must have seen the advertisement these days on TV.
The best part of SIP is that on a fixed date of a particular amount gets debited from your bank account and the best part is that it happens automatically. You don’t see that money and hence you don’t spend that money.
The biggest problem now a day is that because the money is available in your bank account all the time, you can see it and you can access it and naturally, it will find its way for some expenses in your life. So a good idea is to make sure that it gets deducted automatically and you don’t access it. So this is a very good way of saving for your future.
Question #9 – What are the things that we should keep in mind before investing in Mutual funds?
I will talk about three things mainly. First thing is that you should not come into mutual funds with the mindset of getting rich quick. Most people see mutual funds as a stock market and want to just double their money with least effort.
The mutual fund industry is 20-25 years old, already very matured and you should come in mutual funds with the mindset of wealth creation.
The other thing is whenever you are choosing your product or whenever you are choosing a fund you should choose it as per your goal and as per your risk appetite. You can’t just pick a random mutual fund and invest in that. It’s not like Fixed deposits, where every FD will work great.
If you can’t take a risk then don’t invest in a fund which is very very volatile and risky. And if you want high return then don’t invest in a fund which is going to be a very stable return product. So choose it as per your risk appetite.
Finally, I would say that if you can’t do a lot of analysis, and you feel that all this is not your cup of tea, then hire an advisor, pay the fees and take his help in selecting the fund. Don’t think that you can do it all by yourself.
Not hiring an adviser sometimes can cost you more. Bur at the same time, there are some investors who are smart enough and can do these things themselves, but I would say that hardly 1% of Indians are like that. People get overconfident in financial matters and mess up their own financial life.
Question #10 – Is travel insurance a good investment?
First of all, insurance is not the same as an investment. An insurance policy is only to protect from uncertain situations.
Whenever you are going on a vacation there are a lot of things which can go wrong.
- You can miss your flight
- Your luggage may get lost
- Some accidents can happen
- You may get sick while traveling
All these have financial implications and if you have good travel insurance, then it will cover all these things and they will pay for all these expenses.
So if you want to transfer this risk to a 3rd party, you can go for travel insurance by paying a small premium for it. Whereas, if you are ready to face all these problems and risks you can choose not to take travel insurance. It’s all about choice I would say.
I personally feel that when you are going on a long vacation, especially out of India, then a good travel insurance policy is a must.
Hope you enjoyed the audio show
Do you have any comments on the talk? Do let us know in the comments section.