Give the pig a break. Photo by left-hand.
The NY Times today published a very helpful article about financial planning for 2009 graduates as well as a Q&A about the same issue. Their advice: pay off high interest loans, save for retirement early, use tax-free investment options, etc. were the same kind of advice they publish every summer for new graduates. What they didn’t talk about was financial planning for students (as opposed to grads) who don’t have a job that offers a 401K and probably don’t have $5,000 to set aside for retirement. They didn’t talk about anything except for numbers: save $5000 now and you’ll have $100,000 when you’re retired. But what about our experiences? Sure, it’s important to save for retirement and pay off loans (and this article does not give advice one way or another on those issues), but what about financing a trip? Here is some basic (and not so basic) advice about saving for your next great adventure.
-First you have to decide how much time you will spend abroad. Check out my quick getting started guide to get you thinking about how to make that decision. One of the most important factors for determining the length of your trip will not be how much money you have, but rather how you make money. Do you have a campus job? Will your parents pay for any part of your trip? Do you need to work a summer job to raise funds? If you are working over the summer then you have to factor in not only the cost of the trip, but the lost wages: can you afford to take off a month of work and to go backpacking through southeast Asia? If you rely on your summer income to pay for your expenses at school this might not be an option. But, in that case spring break might be the ideal time for your dream vacation. Whereas if you’re working at school you might not be able to take off the whole 10 day spring break vacation. By figuring out which vacation you will use you will be able to at least partially narrow down the decision of ‘how long can I go away for.’
-Next, figure out how much your chosen destination will cost including air-fare, hotel/hostel/free room, food, entertainment, shopping, and misc. Now you have a savings goal. Say, for example that you decide to spend 10 days in the #5 Exotic Student Travel Location 2009, Rio de Janeiro. That will cost you about $1000. Once you’ve gotten the whole trip planned see if you can get your parents to cover your airfare (or at least let you use their miles, hotel-points, or time-share) and subtract that from your total. Either way, unless you’re one of the lucky ones, you’ll be financing a pretty big chunk of this adventure. So, where do you start.
- If you know that you will need a hefty hung of cash for a trip next year, start planning now. The sooner you start saving the easier it will be to do it. For example, if you need $1000 for your trip to Rio at the end of March and you started saving today, you would need to save about $125/month. If you plan on going the year after you only need $50/month. If you can’t afford to put away $125/month consider moving your trip back because if you can’t afford to save for it now, you won’t be able to pay off the credit later.
-Your grandparents might stuff their money into the mattress because they don’t trust those crazy banks, but you’re living in a different generation and need to start thinking in today’s financial mindset. Money in your mattress is losing value due to inflation. So is money in your checking account. Open a free high-interest savings account today and start making some of your saving work for you. ING Direct offers a variable-rate saving account (that means that the rate changes with the market) that is generally better than most rates you can find (1.49%) and they don’t charge any fees. Smartypig is a great new tool for saving for different small (or big) expenses. There is no fee but they do require a $10/month scheduled deposit (from your existing checking or savings account). Their interest rate is unbelievably high (2.75%) and they have a facebook app that lets your friends donate to your cause! Whatever you chose, don’t fall for those high-yield, high-risk investments (stocks, hedge funds, etc.): the high-yield is projected over a 30 or even 50 year period and may actually lose money in the short-term (which is when you need it for your trip!).
-No credit cards: but not for the reason you think! Make sure you have the money in your bank account before you leave. Many American banks have branches or partners overseas that will let you use your ATM card for free (call your bank to find out where they have branches). But, credit cards typically charge you an obscenely large fee for using them internationally (usually a fixed percent of your purchase-price, but maybe even fees) and tend to have bad exchange rates. ATM cards won’t charge a fee if you use them at your bank’s (or an affiliated) ATM and will give you the same exchange rate as the bank itself (which is usually pretty close to the average).
-The only exception to the no-credit cards rule is for your plane ticket. If you have very good credit you may be offered an introductory 0% APR on purchases if you open a new card. While it is not a good idea to open too many credit accounts, if you are planning on opening a new account anyway and would like to travel sooner than you can afford to this might be an acceptable option for you. But, before you jump in thinking you’re home free: make sure you are *sure* that you can pay off the price of the ticket in full before the interest kicks to avoid paying exorbitant rates after your promo period.
If you need help setting or staying within your budget while you’re saving for you trip, try using mint.com’s excellent (free) budgeting software. Remember, every dollar you save today is an extra dollar you can spend in Rio! Good luck saving and happy travels!
Don't forget to stop by often and see what's new. Liked this article? Check out what else is new on my Examiner page. If you would like help planning your next trip, email me at the link above with your questions.
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