Here are some tips to save and optimise your investments for your dream vacation travel plans.

3 Tips to travel the world by saving smartly

Many of us have a desire to travel to new, unseen destinations. However, our bank balance often doesn’t allow us that indulgence. If you’ve been putting off travel plans due to inadequate savings, it’s time to adopt some smart strategies that will allow you to tick off your bucket list of dream vacations without having to struggle financially.

Here are some money management tips that will help you save enough for your dream vacation travel plans – whether it’s an impromptu drive to your favourite weekend destination or a month-long cruise on the high seas.

1. Create a separate travel fund

Allowing your money to idle in the bank account is not a prudent choice. The returns on a savings account tend to be below par, and there’s a good chance you might redirect the money towards other expenses, bringing you back to square one. 

Just as you might build an emergency fund to tide you over an unforeseen event, you should put aside a certain amount from your monthly paycheck to fund your wanderlust. Start with an amount that does not pinch your pocket and see if you can squeeze in some more later by prioritising your non-essential expenses. 

Identify investment opportunities based on your time horizon and budget for your travel. Look to automate the investments so that you are not tempted to spend the money. This way, your corpus will build steadily over time.

Related: Here's how you can create a travel fund for your next trip

2. Optimise your investments

Most travel plans are made for the near future; so you should ideally avoid any investment where there’s a risk of capital depreciation. Equity or equity-based investments are not the best choices. You need to look for short-term investment options that do not have any lock-in criteria and are easy to liquidate when the need arises.

If you have a lump sum amount to deploy, a fixed deposit is an easy option. On the other hand, a recurring deposit works well for regular monthly contributions. However, liquid funds are among the best investment options in India for short-term goals.

Interest rates on short-term deposits are only marginally better than a savings account, at about 5–6%. On the other hand, a liquid fund can yield 7–9% without much risk to capital. Liquid funds are debt-based mutual funds that primarily invest in fixed income securities with a short maturity period ranging from 60 to 91 days. As long as you are investing in AAA or AA-rated funds, the risk of price fluctuation is minimal.

The above-mentioned practice allows you to safely park your funds and earn a dividend income while you chart out your itinerary. The other advantage of short-term liquid funds is that there’s no exit load or penalty on withdrawal; the funds are credited back to your account within 24 hours of the redemption request.

Related: Foreign currency options to consider when vacationing abroad

3. Use your credit card wisely

Any short-term investment will attract tax in some form or the other. This is something you should be mindful of. The primary goal here is to create a savings pool; any additional returns are merely the icing on the cake. However, you can further leverage your investment if you play it smart.

Instead of withdrawing your investment before your trip to fund bookings and expenses, you could swipe your credit card. Many cards are also valid for international travel. Once you return, you can withdraw the exact rupee value of your expenses to pay off the credit card dues before any interest charges accrue.

This can be beneficial on two counts. First, your investment continues to make money while you take off on dream vacations. Secondly, you will earn substantial points on your credit card spend, which can be used to offset some part of the liability by converting them to rupee value. 

Many credit cards also offer freebies and vouchers for those who spend above a certain threshold in foreign currency, allowing them to get a portion of their travel expenses back in kind. However, while using a card to pay for travel, you need to ensure that you don’t end up exceeding what you have budgeted for. 

The earlier you start a savings plan, the more you will be able to save – and possibly leverage on good deals that come your way – without having to worry about dipping into your other savings. Here's a handy guide to raising funds to make a dream vacation a reality.