Building your Financial
Success
With Alain Aube
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Planning for
vacation - short-term investing
EVERYBODY LOVES A VACATION. But nobody likes the credit card bills that
arrive after it ends.
Fortunately, you can avoid onerous credit card balances, and lower the
costs of your holiday, by planning in advance for vacation expenses.
You’ll have a much better time when you know you won’t have to work more
than necessary to pay for your fun.
The best vacation planning strategy is to save before you go. If you
leave for your holiday with enough cash on hand to pay for your travel,
accommodation and expenses, there won’t be any big long-term bills when
you return.
A "pay-yourself-first" approach works as well for vacation savings as it
does for retirement. Set aside a portion of your weekly or monthly pay
as soon as it comes in. For instance, by putting three per cent of your
income at the beginning of the month into a savings account, you’ll save
money before you have a chance to spend it. You don’t have to do this on
a percentage basis; you can allocate a fixed dollar amount to your
vacation fund.
There’s no magic to the pay-yourself-first strategy. If the money has
been designated for a specific goal, such as a vacation, you’re more
likely to save it. Plus, putting a little aside at regular intervals is
less painful than trying to save big chunks of cash.
To make the most of your savings, don’t leave it all in a low-interest
bank account. Once the money starts to build up, move some of it into
investments that generate higher rates of interest.
A money market mutual fund is a good bet for vacation cash. You’ll earn
competitive interest, and you can redeem fund units in a matter of days.
Some money market funds allow chequing privileges. Planning a trip down
south? Some money market funds even allow you to save in US dollars,
reducing your exchange risk.
If your vacation is a long way off (perhaps you’re saving for that
once-in-a-lifetime trip) and you can commit your cash for a longer term,
consider Guaranteed Investment Certificates (GICs), or term deposits. By
locking in your money for a fixed period, you could earn a higher
interest rate. Government Treasury bills also offer excellent short-term
investment opportunities.
Another possibility for vacation investing is government-guaranteed
savings bonds, Canada Savings Bonds. They’re cashable at any time, but
you can purchase them only within a limited time period each year. Many
companies, however, offer payroll savings plans that allow you to have
money automatically deducted from your salary to purchase these bonds.
That’s like an automatic pay-yourself-first strategy.
With good planning, you’ll soon find that you have more than enough for
a vacation. That means you can fund your trip in advance—for example, by
paying cash for your travel tickets and purchasing traveller’s cheques
and/or using automated teller machines during your holiday. Or, you can
pay off your credit card bills before they accrue interest. Not only
will you have a more enjoyable vacation, but you’ll also enjoy a
financially worry-free return.
Speak to your financial advisor to develop a plan that allows you to
‘pay-yourself-first’, and meet your vacation-saving goals.
