Indian economy might be growing at sub 6% level but recreation spending of the ever-growing middle and higher income groups in the country seems to be unaffected. All holiday destinations are crowded during season and not being able to get bookings in hotels and resorts of your choice is common. Last minute air travel costs you, at times, as much as double the normal airfare. Those who plan in advance get better bargains. However, merely planning tour in advance may not be enough if you want to make your trip economical. You may keep aside some of your earnings every month and invest them effectively to be able to finance your vacation. Following this approach doesn't only lessen the burden of paying for vacation at the last minute but returns earned on your investment reduce your out of pocket expenses. Here's how you should go about it...
 

• Finalise the Destination and estimate budget
• Calculate Number of months / years left
• Inflate the budget using appropriate multiplier (costs associated with trips go up every year)
• Calculate the amount that you can spare every month
• Choose suitable investment avenues to earn desired returns
• Ensure you timely encash your investments
   

The table below assesses various options one may have while planning tours. You may opt for a personal loan and pay EMIs or you may build your corpus through savings. In that case you would have to defer your touring as you would have to allow your investments to grow. If you are paying out of your pocket; you must ensure that you have kept aside some amount as a contingency fund.
 

Destination	Budget in Today's Terms(in Rs)	No of Years Left	Inflation adjusted Budget (in Rs)	Amount you need to spare every month (in Rs)	Amount you need to spare every month Without Planning (in Rs)	If parked in Savings bank A/C (in Rs)	EMI (Assuming you opt for a personal Loan(in Rs)
Foreign Destination (Europe/ USA)	600,000	5	966,306	11,877	16,105	13,781	14,274
Foreign Destination (Other than Europe/ USA)	400,000	5	644,204	7,918	10,737	9,187	9,516
Places within India	150,000	5	241,577	2,969	4,026	3,445	3,568
Places within India	150,000	3	199,650	4,785	5,546	5,050	5,200
Places within India	150,000	2	181,500	6,952	7,563	7,101	7,273

(For illustration purpose only; based on calculations)  

Assumptions:
 

1. Cost of tour goes up by 10% every year
2. Budgets for family of four
3. When time horizon is 5 years, equal amount is invested in equity and debt
4. When time horizon is 3 years, mix of debt and equity is used in the ratio of 4:1
5. When time horizon is 2 years, money is invested only in debt
6. Rate of Return on Equity: 15% p.a.
7. Rate of Return on Debt: 8% p.a.
8. Rate of interest on Savings bank account is 6%
9. Rate of Interest on Personal Loan is 15%
10. The tenure of each loan is assumed to be just the same as the time interval needed to accumulate money via your own savings to finance tours
     

Foreign tours cost more and may put strain on your finances if not planned properly. Trips to Europe and the United States costs as high as Rs. 6 lac for a family of 4 people. In such cases, it is advisable to plan your holidays well in advance, say 5 years. Touring within the country is no cheap either and hence this as well, may be planned in advance. Furthermore, table clearly shows that you end up paying more if you opt for a personal loan to holiday at your dream destinations.

PersonalFN believes that while going on vacation with loaned money may be tempting as it gives you immediate satisfaction of holidaying with your dear ones; it may be bad for your personal balance sheet. By planning well in advance, you would not only finance your outings but would utilise financial resources optimally which may eventually help in your long term goal of wealth creation. A rupee saved is no less than a rupee earned.

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