Having a holiday to look forward to is one of life’s many pleasures. Who doesn’t look forward to their summer holiday – or any holiday, for that matter? Alexander Forbes Financial Planning Consultant Mark Hawes says people often start thinking about the next holiday within the first week of getting back – if not on the trip home.
“We think of all the things we could have done and would like to do next time. Yet, given this conscious decision that there will be ‘a next time’, we don’t put much thought to actually paying for it until it’s around the corner,” Hawes says.
It is common place for holidays to be paid for using annual bonuses, a 13th cheque or even credit cards. “Unfortunately this strategy just makes January even longer. As a result we often return from holiday straight back into stressing about getting to the end of the month – especially if we have the added expense of having to pay off the holiday. This simple financial misstep can get the new year off on the wrong foot and, if there are any unforeseen expenses, it can take six months to recover financially and you could end up having to delay your next holiday.”
Hawes advises that the Ideal situation would be to not use your credit card at all, and secondly, use your bonus or 13th cheque to give you a financial head-start for the next year. “This will take the pressure off your wallet right from the beginning of the year. As unrealistic as that may sound it is not only possible but actually quite simple to do with a very old strategy – savings.”
Forewarned is forearmed so if you know you will be going on holiday in the next year, you know you will need to pay for it so start saving for it. “Just start! In this way you are guaranteed to have some money, cash money, for your holiday – stress and guilt free.”
Hawes said most people did not know how to start saving because they don’t know what their next holiday will be so they don’t know how much they will need. “The simplest way to get an idea is have a look at how much you spent on your previous holiday and aim for that. Even if you don’t manage to save all you need, you will spend less of your bonus or on your credit card leaving you with more money to give you that financial head start to on achieving your goals for the next year – from day one.”
“Progressively you will be able to save more and more for better and bigger holidays and you will not have to sacrifice any other of your personal financial goals to take that annual holiday.”
The next step is to choose a savings vehicle that is appropriate for your objective of your annual holiday. “If you are saving one year at a time or six months at a time you would need to choose a vehicle that does not tie up your money unnecessarily. Most holiday plans require putting down a deposit to book the accommodation and transport, therefore the simplest vehicle would be the likes of a money market fund. Most are easily accessible and with the cash portfolio there should be no volatility in the value of the investments with some moderate increase in the value from the interest.”
Hawes said it was important to be aware that getting an extra 1 or 2 % interest on funds which you were unable to access may result in paying with your short term debt, such as an overdraft with an interest rate in excess of 20%. “So it is better to prioritise the access to the funds so you don’t end up significantly increasing your net interest costs unnecessarily.”
The further you book your holiday in advance the better prices you can secure generally. “Keep your eye out for these specials and make sure your savings are accessible. If you must use your credit card to take advantage of an ‘early-bird’ special and your savings are insufficient then make sure you can pay off the credit you are using before you go on the holiday. This way you will arrive back from your holiday refreshed and debt-free to start putting your savings toward your next trip.”
On the other hand, if you have not given your next holiday even the slightest thought it is still a good idea to put some funds aside regularly. “It is quite safe to assume that at some point in your future you will want to take holiday. And when a truly fantastic holiday opportunity comes along will not have to worry about finding the money because you will already have it.”
“As South Africans it is part of our lifestyle to take time off and try to get away at least once a year. Your holiday will reinvigorate you for when you get back to your home, family, friends and work – don’t be the person who stresses instead about how you are going to pay your bills at the end of the month.”