Did you know, one in five of us unintentionally spends up to £20 on a single alcoholic drink when we’re abroad? It’s one of the many factors set to contribute to nine in ten Brits overspending on their holidays in 2018, according to a recent poll. With this in mind, we sat down with Hannah Beecham, writer on personal finance, for tips on how to avoid typical holiday money traps…
How much are we overspending on holiday?
“Foreign currency is a minefield for holidaymakers if they don’t know what to look out for,” says Don Clark, founder of Travel Money Club. According to Travel Money Club’s poll, a quarter if Brits will run out of money by day three of their holiday this year because they’re unfamiliar with the currency. In fact, many will end up spending around £200 more than anticipated – and local spirits, jewellery, handbags and sunglasses are all common offenders.
What financial pitfalls do we fall into abroad?
According to Beecham, the biggest financial mistake we make on holiday is failing to register that buying something – be it accommodation, a meal or souvenirs – in anything but the local currency could incur additional fees. Ignorance plays a part too – half of those surveyed admit to not thinking how they’re spending when on holiday and a third confessed they forget to budget altogether.
How could we avoid these?
To avoid going over your holiday budget, Beecham recommends planning how much you have to spend on every aspect of your holiday – from cocktails to trips – before you go. “Plan ahead to buy the local currency via a currency broker rather than a bank,” she advises. “Their fees should be cheaper and their exchange rates more favourable.”
Clark agrees: “Familiarising yourself with the current conversion rates and reading the small print on charges and commissions will prevent unexpected surprises when buying foreign currency,” he says.
Are there any emergency funding options available?
Officially speaking, no (despite the fact many people believe otherwise); your best bet is actually friends or family back home. “A British embassy can help you if your passport is stolen but cannot reimburse you for cash lost,” explains Beecham. It’s therefore worth devising a plan for if you do lose your card or cash on holiday, such as stashing some emergency money somewhere hidden.
Where should you convert your travel money?
It’s always worth converting some money for your trip before you travel (if the currency is available in the UK), and not last minute at the airport where the exchange fees are likely to be highest.
“If you know months before which currency will be your holiday spend, then start watching the currency exchange movements and plan to exchange at the most advantageous rate,” advises Beecham. “Rate fluctuations occur on a daily basis, so make it a regular task to understand which direction the two currencies are moving in – and watch rates offered by a handful of brokers/banks to see who's offering the best possible rate for the best possible fee,” she says.
Cash, travellers’ cheques or bank cards when abroad?
According to the poll, a third of Brits don’t know if it’s better to use cash or credit cards while abroad, while 45% of us have no idea how to get the best deal for our money. So what should we take with us money wise? Beecham suggests a mixture of spending methods is a good idea.
Cash: “You'll need to travel with some cash in the local currency,” she says, cautioning against carrying large wads of cash around.
Bank cards: Many people continue to use their usual bank card when abroad – just be sure to tell your bank before you go to avoid them blocking your card on suspected fraud. “Those who plan to use their debit or credit card should also make sure they know the foreign usage fee charged by their card providers – so there'll be no nasty surprises on coming home.”
Prepaid travel cards: “Prepaid travel cards [available from most currency brokers and the Post Office] can bring great peace of mind as you'll be travelling with the means to pay in the local currency,” says Beecham.
Top tips for holiday spending…
Work out how much it’ll cost beforehand: As soon as you’ve booked your holiday, draw up a plan and research the location online so you have an idea of how expensive it’ll be.
Work out how much time you’ve got to save: Calculate the amount you can realistically save each month to cover all costs.
Allow room for errors: Think about adding a 10% contingency allowance for unexpected costs.
Remember insurance: Don’t forget to book travel insurance and make sure you have a policy in place before you travel.
Travel with cash: Even if you plan to use a card for the majority of your holiday, not everywhere will accept them, so make sure you have some cash handy as a fall-back option.
Pay in the local currency when using a credit card: By paying in the local currency (rather than your home currency) you’ll avoid being charged a ‘dynamic currency conversation rate’ which automatically converts the purchase price into sterling and charges you extra for the conversion.
Check places accept prepaid travel cards: You’ll avoid disappointment, embarrassment or a sticky situation when you can’t pay your way.
Do your homework on exchange rates: Remember exchange rates from all providers will vary, so do your research beforehand to get the best deal.