This article was co-authored by McKenna Girtz, an associate advisor with Wipfli Hewins Investment Advisors in Minneapolis, MN.
So, you’ve just booked your next trip! Are you skiing through Switzerland’s breathtaking Swiss Alps? Are you hiking through Italy’s enchanting Cinque Terre? Or maybe you’re relaxing in an oceanside villa located on one of Thailand’s mystical islands. No matter the adventure, it is crucial to ensure your finances are in check before takeoff. With these five steps, you can avoid any surprise expenses and rid your vacation of finance-related stress.
1. Notify all financial institutions of your travel plans
Be sure to alert your financial services institutions of your travel plans prior to departure. When caught up in the hustle and bustle of packing and pre-trip preparations, many people overlook this simple step. But if you forget, any sort of non-typical transaction can throw up a red flag to your institutions, causing a freeze on your account or a denied card. Don’t let this easily avoidable mistake keep you from sinking your teeth into a delectable pastry from the local café.
2. Apply for a no foreign transaction fee credit card
Many credit card companies charge substantial foreign transaction fees to customers who do not use a travel-friendly card. The average foreign transaction fee among credit card companies is three percent; this may not seem like a large financial burden at first, but that additional three percent can really build up the overall cost of your trip over time.1 Wouldn’t you rather use that extra money to treat yourself to a scoop of gelato, instead of paying it to your credit card company?
It is a good idea to shop around the credit card market to see which cards will work best for your situation, and which cards offer the best signing bonus. Most travel card companies will offer anywhere from $150 to $500 in free travel money as an incentive for using their cards.2 Yes, you read that right — FREE money that can be used for traveling. Does it get any better than that? In addition to the initial signing bonus, your new card can earn you travel rewards to be applied to your next trip — double bonus!
3. Exchange your cash before your trip to avoid high exchange rates
For ease and convenience, you may choose to use a credit card to pay for purchases while traveling abroad. However, with that being said, it is still a good idea to be prepared for situations in which cash may be your only payment option (think of the small mom-and-pop store that is still operating card-free). For the sake of your wallet, do not depend on exchanging your cash at the airport. Many airport kiosks charge numerous fees for exchanging cash, which can take a chunk out of your travel budget.
As an alternative, you may choose to withdraw cash using your bank’s debit card at a local ATM, though it’s very important to be mindful of any transaction fees. Also, steer clear of “money service” cash machines, which look similar to bank ATMs, but often charge exorbitant transaction fees of their own. To be safe, you can always choose to do the extra legwork in advance and exchange your cash before you leave your home turf.
Most big-name banks sell foreign currency, and similar to the search for a credit card, it is best to determine which bank offers the best exchange rate. If you are visiting multiple countries abroad, make sure to determine what type of currency each country uses before your trip to the bank. The good news is that some larger banks have international branches or ATM alliance partners that will allow you to withdraw money from their ATMs fee-free, if you do find yourself in a pinch for cash. It never hurts to have a back-up plan!
4. Create a travel budget for yourself (and stick to it!)
Vacationing and travel often give way to a carefree, “go big, or go home” mentality. While it may be tempting to spend beyond your means, it is important to create a travel budget — and stick to it! To start, brainstorm the day-to-day expenses you will likely incur during your trip. How much are you willing to spend on food and drink, transportation and lodging accommodations per day?
While the cost of living can vary greatly between countries, there are many websites (like this one) that can give you an idea of what expenses — such as a typical cup of coffee or a bus ticket — in your destination city may cost you. Once you have a good idea of what your daily expenses might look like, you can start budgeting on a week-by-week basis and work in some of those larger, non-frequent expenses.
Whether you’re planning an excursion or catching a flight to a surrounding country for the weekend, paying for extra activities in your destination of choice can add up quickly. Consider booking these activities before your trip, so you can stay on track with your allotted budget and avoid the excess expense that comes along with last-minute purchases. Staying disciplined with your budget will make checking your bank account or paying off that credit card bill way less painful upon your return.
5. Make sure your cell phone is on an international plan
Give your cell phone provider a call and set up an international phone and/or data plan; you’ll thank yourself later when that monthly phone bill comes due. Often, these international plans prove to be much less of a financial burden than the “pay-as-you-go” option. An international plan can cost anywhere from $5 to $10 per day or $40 per month. If you opt for the pay-as-you-go option, cellular providers charge international roaming fees anywhere from roughly $1 to $3 per minute for talk; $0.50 for every text sent, and $0.10 for every text received; and up from $2 per megabyte (MB) of data used.34 While Wi-Fi abroad is becoming more prevalent, it certainly does not compare to the availability of Wi-Fi in the U.S., so depending on that service as your sole provider of communication may be a risky travel move.
If you are a frequent traveler or plan to extend your stay abroad, you may also temporarily swap your U.S. SIM card for a local SIM card to achieve greater convenience and cost savings. Before taking this route, be sure to do your research and ask your phone carrier if your device is “unlocked” (e.g., allows for SIM card replacement) and is optimized for use internationally.
Have you crossed these five, smart money moves off of your seemingly never-ending pre-travel to-do list? Congrats! Now, go pack your bags, fasten your seat belt and prepare for takeoff, because you are five steps closer to the trip of a lifetime!