I think that after reading the title of this post, many of you would have become interested in knowing more about the person behind such a ‘noble’ thought. 😉
Unfortunately, all I know is his name – Amir. Ever since I started a section to handle personal finance questions, this had to be the most interesting question and I decided to address it as fast as possible. For the benefit of readers, I would summarize Amir’s question below –
Amir’s 5thWedding Anniversary is due in 2015. He wants to take his wife to Dubai for 5-6 days to mark this special occasion. He also wants to make provision for shopping in Dubai. His question isn’t clear as to when exactly does he wants to go, but I would assume that it’s in second half of 2015. He also says that he can pre-pone his trip to take place in 2014. But that according to me might defeat the very purpose of 5th year celebrations. He wants to know whether he should fund this trip using credit cards or share market trading.
|How To Fund My Dubai Trip?
I checked a number of flights, hotels and holiday packages for a 6 day trip to Dubai. And my preliminary research showed that it would cost around Rs 55,000 per person for a decent stay in Dubai for 6 days (including airfares). Additionally, one needs to pay another Rs 5200 per person for Visa. This brings the total for two persons to approximately Rs 1,21,000. Now the next figure which I would add to this amount can vary from person to person. It’s the shopping budget. And as far as ladies are concerned, any budget for shopping is less. So to keep matters simple, I assume that the couple would shop for around Rs 50,000 plus. This takes the total to Rs 1,71,000.
And just to make provisions for contingencies, travel insurances and other unforeseen expenditures, I have decided to round off the estimate to Rs 2,00,000.
Now, Amir failed to provide the following important information(s):
– Monthly Surplus (Income from all sources – Investments – Expenditures)
– Exact time of travel
– Shopping Budget 🙂 (I have already played safe with my assumptions here).
Now to decide how to fund this trip, we need to know when Amir needs to travel. I will assume that he plans to travel between Sept – Dec 2015. This means that he needs to be ready with funds by August 2015. This leaves us with 21 months (starting December 2013). Now I still don’t know his monthly surplus. But what we do know is that Amir needs to arrange Rs 2,00,000 in 21 months.
Now a simple recurring deposit of Rs 8900 per month for next 21 months, earning a 7.5% interest per annum can do the job. It’s that simple.
As far as taking a Credit Card debt is concerned, one must understand that it is the costliest form of debt and at times can cost you more than 35% per annum in interest costs. And you don’t want to pay 35% interest on Rs 2,00,000 for next few years, isn’t it? 🙂
Another option which Amir mentioned was stock markets. I would not suggest this option even though you have close to 2 years as your time horizon. I personally think that over a short term (less than 5-7 years) stock markets can be risky with high chances of capital erosion. You may be a good stock picker and may be able to make the required amount in less than 21 months. But I have no access to knowledge about your stock picking abilities. 🙂 And also, just imagine a situation that you decide to go ahead with your decision of making money in stock markets to fund this trip, and god forbid, markets take a dive in July 2015 and you are left with inadequate funds to pay for your trip. What will you do then? You may decide to take Credit Card debt and go ahead. But why would anyone want to take chances with such an important event of your life? It’s better to keep it simple and go for a simple recurring deposit.
Note – I have made assumptions regarding the trip and shopping expenditures. The real costs may be higher or lower, and consequently, your monthly RD contribution would also be higher or lower. Consider this to be disclaimer from my end. I don’t want your wife to come after me for miscalculating her shopping budget. 🙂