How to save for a holiday without risking primary goals

Aneesa, 38, is a single parent with an 11-year-old daughter. She has been longing for a vacation in the Mediterranean, but doesn’t think she can afford it. She saves diligently and invests a regular amount towards her daughter’s higher education and for her retirement, but there is no surplus for her vacation. Aneesa is tired of waiting and doesn’t want to postpone her plans indefinitely. How can she pull it off in the most optimal way without jeopardising her long-term financial goals?

Vacations can be costly, especially international ones, and, therefore, need serious planning. Instead of becoming desperate and taking a loan to fund her holiday, Aneesa should look at it as another short-term financial goal, and add vacation savings to her financial plan. She could divert some of her savings to a vacation fund without impacting her long-term goal-based saving.

As a first step, Aneesa should draw up a holiday budget by factoring in conveyance, hotel, food, incidental expenses, shopping and a provision for any adverse currency fluctuations. Starting a recurring deposit or an SIP in debt-oriented funds would be ideal for disciplined savings from a 12-18 month perspective. Any windfall gain or surplus such as a tax refund, annual bonus or proceeds from asset sales can also be poured into the ‘Mediterranean holiday fund’.


There is another alternative, which comes with some cost, but can bring the vacation date closer. Aneesa can take a loan against her existing investments. Banks and NBFCs offer such loans, using investments as a collateral. She will have to repay in EMIs, which is similar to creating a vacation corpus, except that the repayment is likely to be higher due to the interest component in the monthly instalment. However, her investments for long-term goals will remain intact if she repays the loan on time.

Loans against investments are far cheaper than personal loans or credit card debt. Both of these are unsecured borrowings and, therefore, charge a higher rate of interest.

Content courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.