Taking a vacation is exciting, but how do you manage it so that it goes smoothly financially? There are certain risks that may rear their ugly heads and are best to nip in the bud. Here are some tips for traveling internationally that will help you avoid money mistakes and the stress that comes with them.
But before we get into it… We are financial advisors in Morristown, NJ, providing financial advice for New Jersey residents as well as folks across the country. Before we get started, you may want to check out these financial planning blogs we’ve written:
Filing your tax return: traps to avoid
Retirement Account Contribution Amounts – 2024 changes!
Do I have to pay taxes on an inherited annuity?
Let’s get into it!
Vacations get put into the mental category of “fun and relaxation” in our minds. So, it’s no surprise that people spend a ton of time thinking about how to maximize enjoyment and little time, if any, thinking about the risks. Here’s what you should know to make your trip abroad go smoothly, from a financial standpoint.
Keeping foreign exchange costs low
If you are traveling abroad and need cash in a foreign currency, just go to the ATM and withdraw cash. Doing it this way, you’ll get a better exchange rate than executing a foreign exchange transaction in your home country before you leave.
When trying to keep foreign exchange costs low, consider whether to use your credit card or just pay cash. It’s sometimes better to deal in cash instead of putting charges on your credit card when you are in a foreign currency. Shockingly, certain credit cards charge you a fee for swipes abroad, and will give you a bad exchange rate on top of that! Make sure you do research and figure out if your credit card gives you a raw deal when transaction business abroad. We’ve seen the cost of spending money in a foreign currency increase by as much as 5% for these reasons.
Know what your travel insurance actually covers
The jury is out on whether or not it makes sense to purchase travel insurance. These policies usually cover expenses related to trip cancellation or delay, such as storms, medical emergencies, or work obligations. They may also cover lost baggage. Unless your policy states as such (and usually you have to pay for this coverage option), you can not cancel the trip for any old reason. For example, if you have an annual physical that you didn’t realize you scheduled during the trip, travel insurance is unlikely to cover it.
Read the fine print!
These policies can be expensive so think about if it’s worth it before you buy. This is not just a good tip for traveling internationally, it’s also a great piece of financial guidance. Nobody likes reading the policy, but you really should if you want to make sure it’s designed to do what you actually want it to.
Take more than one credit card
It’s a simple thing – bring a back up credit and/or debit card – but you’d be surprised how easy it is to forget. With all the excitement of being in a new place, it’s easy to leave your credit card at the restaurant.
Or what if it gets stolen? The replacement won’t come in time, so make sure you take a backup.
This is good advice, not just for those taking a trip overseas but for any time that you take a trip.
Tell the bank you are traveling
Some banks have alerts set up so that accounts get locked when charges happen in an unusual location. You can let the bank know in advance that you are traveling as a precaution. You can even do this online in some cases. Also, check your account settings and make sure you don’t have international charges blocked.
Don’t fall for verification schemes
When traveling abroad, a friend of ours got a text to confirm a transaction he just made. Seconds later, he got a phone call. Taking it as legit, he provided information to verify his identity. It turned out to be a very intelligent schemer and he became the victim of fraud.
He’s not alone – many people would have fallen for this. The scammers have gotten way savvier these days and can harp on even the most subtle of our psychological weaknesses.
Not all identity verification requests are real – they might be a scheme. Confirm what your credit card company’s process is beforehand so that if you do get a verification request you can be sure it’s not somebody trying to take advantage of you.
Have a travel budget
Putting yourself on a budget when taking a big international trip may seem like putting yourself on a diet right before a trip to the candy store.
It doesn’t sound very fun.
However, your ability to stick to your financial plan is going to be one of the largest determinants of where you end up financially years later, decades after the trip is done and it’s nothing more than a memory. For this reason, it makes sense to put some parameters in place.
A financial plan for an overseas trip may include:
- Estimation of exchange fees, credit card surcharges for international processing, taxes, etc.
- Base expense calculation (hotels, food, airfare, taxis)
- Allotment of spending money for entertainment and activities
- If you are paid hourly, estimation of how much income will be missed during time off
It’s okay to spend money on a vacation, but costs can add up pretty quickly. A travel budget isn’t about pinching pennies; it’s about getting clarity about what to expect can help you make wiser decisions and avoid compromising your financial strength. Credit card debt is a real risk, even for the wealthy!
These times are to be enjoyed, but try to see it all in the context of your larger financial plan. What does this do overall to your savings goals for the year? Having a broader view is useful.
Update your estate plan
It may be a good idea to review your estate plan before traveling abroad. If there is any time to make sure your wishes for your estate are clear, it is when you are traveling internationally.
- Living will. Take a look at your will and make sure your wishes are expressed correctly. Check to assure that the guardianship plans you have in place are still what you would want, if someone were to have to step in and take care of any minor children. You’d also want to know that your intentions for distribution of your assets reflect your current preferences.
- Healthcare proxies and power of attorney. A healthcare proxy allows someone to make medical decisions for you, if you are unable to. A power of attorney permits another person to make financial decisions for you if you were to become incapacitated.
- Final wishes. Your wishes for how you wish to be cared for at the end of life are outlined in a living will. This document may also specify any funeral and burial plans.
- Beneficiaries. Make sure you have correctly named the parties you wish your assets to be handed down to.
It’s not the rosiest to think about, but you may be subject to risks that compromise your health or wellbeing. Even if you aren’t, it’s a great idea to review all aspects of your estate plan on a periodic basis to make sure any life changes are taken into account.
Did our tips for traveling internationally help at all?
We hope that these tips for international travelers have helped you to prepare for your trip, from a financial standpoint.
We are financial advisors in Morristown, NJ serving the local community and beyond. If you have questions about managing your money in a way that jives with your plan to retire in New Jersey or elsewhere, or (like us) are just plain old Bruce Springsteen fans, reach out and send us a message.
Sources
Metz, Jason. (26 October, 2023). What Travel Insurance Does Not Cover. Forbes. https://www.forbes.com/advisor/travel-insurance/will-never-cover-this/