- September 6, 2019
- Category: Financial Planning
Think about regular recurring expenses and travel has become one. Frequent getaways are common today for the millennials to unwind. This is unlike the older generation which waited till retirement to plan an international trip or travelled just once in a year. Today, short vacations are common, be it an adventure trip or just relaxing in a resort. These are undertaken 2-3 times in a year and the cost of these short trips start from a minimum Rs.20,000 each. If one stays in a more than decent resort, the cost can go up to Rs.50,000 for a family of four. If planned further from the home city and in another state for 4-5 days, the cost can go up to Rs.1 lakh or even more.
Travel expenses are usually paid randomly from the regular salary account or credit card. But what if you have a dedicated vacation kitty from which you can systematically withdraw for your leisure trips?
Why create a vacation fund?
The idea is to set aside regular amounts every month in a disciplined manner for a vacation kitty. So, when travel is on the cards, you can withdraw from this fund. It is prudent to withdraw from a dedicated fund mapped to a goal rather than randomly withdrawing money from salary account as and when required. When a particular goal is mapped to a fund, it gives clarity and a perspective as to how to prioritise resources. It will make you aware if you are going overboard and whether you need to postpone your trip or tone down the budget. You can start with small amounts and the fund will eventually grow bigger with your regular contributions. More importantly, when the money is arranged, you need not rely on unnecessary borrowing like credit card debt for short vacations or casually utilise your emergency fund.
Where to park your vacation fund?
You can invest small contributions for a vacation kitty in a liquid fund. Liquid funds invest in very short- term instruments like commercial paper, certificate of deposit, treasury bills, term deposits having a maturity period of up to 91 days, i.e., 3 months. While the returns are not fixed, the risk is very low for such a short duration. The money can be easily redeemed from a liquid fund and is usually credited into an investor’s account the next day.
You may also park a portion of your money in fixed deposits. But usually, short vacation trips are not diligently planned and can happen any time during the year. In that context, fixed deposits do not allow the flexibility to redeem the money anytime as liquid funds do. You will have to break your deposit which will attract up to 1 per cent penalty on premature withdrawal. Liquid funds are a better bet than fixed deposits when it comes to easy liquidity and convenience.
To conclude, having a dedicated vacation fund will help you avoid spending money on leisure trips in a haphazard and impulsive manner. You will be mindful of the budget. Moreover, you will be spending the money exclusively saved for the vacation fund free of guilt and worries.