Spending to get richer!
Introduction
We all have dreams - a dream home, dream car, dream house, dream career, and not to forget the dream holiday. Each of these is special, but a dream holiday is exclusive! To live your dream is to live your life, and to joyfully live your life is eternal bliss. Most of the people are not able to experience this as they find it tough to fund their holiday. This simple guide can help you stand out from the crowd to cruise your way to achieve your dream - the dream holiday!
Work out a budget
You firstly need to decide whether you would like to go for a holiday in India or abroad. If you are running low on budget and you would like to take a holiday soon, you can zero- in on a place within India. If you want to go abroad and have enough savings for the same or you can wait to accrue the corpus, go for it.
A dream vacation is a dream vacation. However, you must not get carried away by this. You need to decide a budget by sorting out your priorities for the holiday and stick to that budget strictly.
Start a SIP
Funding a holiday requires a considerable amount of funds. You can make it simple by breaking down the targeted amount into smaller amounts in the form of a Systematic Investment Plan ( SIP ). A SIP works just like a Recurring deposit scheme. You can contribute a fixed amount in a chosen scheme and take out the funds at the time of need, unlike an RD from where you get the maturity proceeds. This is one of the areas where a mutual fund SIP scores a point over an RD. There are many other benefits too. You need to choose the category of the scheme based on the time horizon of your goal.
Assuming that you require an amount of INR 3 Lakhs one year down the line for the holiday, you need to start an SIP of Rs.24,000 on a monthly basis in a debt fund ( preferably a good Money market debt fund ) which can potentially fetch interest of around 7% p.a. helping to build the corpus of Rs. 3 Lakhs in a year.
Considering another example where the funds required are the same Rs.3 Lakhs but the timeline is 3 years. In this scenario, a monthly SIP of Rs. 7,500 fetching an interest of 7% p.a. in a debt fund ( a good quality short term debt fund ) will help you reach the required amount.
Note - Debt mutual funds are expected to offer around 7% interest on an annualized basis. The returns can fluctuate depending upon the interest rate scenario in the economy and the quality of the portfolio of the scheme. You should invest in debt fund(s) which hold high-quality papers and avoid credit risk ( risk of defaulting on the interest or principal payments by the issuer of the security). In the falling interest rate scenario, debt funds have the potential to offer higher than the average returns.
Use the bonus
You can use the bonus or incentive you get in order to top up your vacation fund. There are chances that your dedicated SIP might not increase to your targeted amount for the vacation. This is where the bonus can come in handy. Another benefit of a mutual fund scheme is that you can top up the same scheme in which you are already contributing through SIP, by a lump sum amount you receive in the form of a bonus. This will help your accumulation grow to a bigger amount and reach closer to your target amount.
Don’t take the loan
These days many banks and Non-Banking Finance Companies ( NBFCs ) offer loans to fund your holiday. However, do not get into this trap. A loan is a liability for which future income is committed along with the interest. When you invest money from your savings, you earn interest on the same. Now think which is a better option, paying interest on your unearned income or earning interest on your saved funds? The answer is obvious. If you find yourself in a position where you have to take out a loan in order to fund your holiday, simply acknowledge the fact that it’s not affordable for you currently and postpone it or taper down your budget.
Conclusion
If you follow a proper strategy, you can plan efficiently. Planning in advance can help you clinch a good deal if it were on offer. Also, you can cut down on major expenses like conveyance, travel, and hotel bookings by booking in advance. A holiday is an opportunity to journey within yourself. Take the journey - Live! Explore! Wander!