Travel Finances Home > How to save towards your holiday

How to save towards your holiday

You work hard all year and if there is one thing you really deserve, it's a wonderful holiday. So make sure your cash doesn't just disappear on bills. Plan ahead to make the most of your money and your precious time off.

Dreaming and planning

Now is the time to dream. If there are places you really want to visit you can research how much the trip would cost and the best time of year to go. But it's no good heading off into the sunset with a credit card and hoping for the best. The last thing you want to be worrying about is whether you can afford to have a good time or the bills and card statements waiting for you at home.

Once you have a destination and some dates in mind, book the time off work. There is no point leaving this until the last minute and it's also important to have something to look forward to.

In addition to flights, get a feel for the day-to-day cost of accommodation (if you are not booking it in advance), food and any domestic travel to build an accurate picture of how much money you will need to. Compare the prices of package deals with buying flights and hotel separately. Then add on the costs of sightseeing, souvenirs and entertainment. Aim to double that total amount or at least increase it by half as much again to provide a buffer for emergencies and big bar bills. Having additional cash will give you far more options and prepare you for any changes in your plans or spur-of-the-moment activities.

You will also need to budget for travel insurance. Depending on your destination and what you plan to do when you get there, this can cost from as little as £20. Remember, if you plan to go abroad more than once in any 12 month period then an annual policy could work out a lot cheaper. But this is not the place to cut corners. Take the time and be prepared to spend the money for the right insurance cover - cheaper is not always best.

Now you should have a target of how much you need to save.

Maximise your income

Draw up a simple budget and write down everything you spend money on each month. This is an ideal way to spot areas where you can cut back. For instance, if you have not used that expensive gym membership for months then cancel it and use the cash to start your holiday fund. After all, running around on a gorgeous beach or white-water river rafting will keep you fit on holiday.

If you are a student or planning a gap year then take advantage of the millions of pounds worth of funding offered each year for travellers. Tom Griffiths of gapyear.com says potential sources of funding include local organisations such as the Rotary Club, Lions Club or Round Table, or little-known trusts such as the Peter Kirk Memorial Fund, set in memory of the MP who died in 1977. 'They're all listed in the Directory Of Grant Making Trusts - but it's a big, fat book (928 pages, around £80) and young people are lazy, so they get turned off and end up working shifts in McDonald's and trying to save money that way,' Tom explains.

Grow your holiday fund

Now you have your target and hopefully some cash to set aside to meet it, find the best savings vehicle for your money so that your holiday fund can blossom.

If you only have a few months then a simple, easy-access savings account should be most useful. But don't just sign up with your existing bank. It's worth shopping around to get the highest rate of interest, even on basic savings accounts. Telephone or internet-based accounts which cut out branch costs may be able to offer more interest on your money. Make sure you know how you can get your cash out when you need it. If you have more time then a notice account generally pays higher interest on the basis that you give notice for any withdrawals. You will have to wait between one and three months to get access to your money although instant access is usually possible, subject to an interest penalty - of between 30 to 100 days - on the money you withdraw. Again, shop around for the best deal and make a note in your diary of when you need to give notice to withdraw your cash.

It is always more fun to spend money than save it so resist temptation by setting up a monthly direct debit moving your holiday cash into a separate account. Choose a convenient day for the transfer such as just after pay day and you should be able to just forget about it. If still feels tough just keep thinking about your big trip. Stick a picture of your destination in with your credit card or save it as wallpaper on your computer screen and mobile phone.