It is officially summer, and many people will be traveling. Some reports indicate that the level of travel will approach pre-pandemic levels. Further, many Americans will be traveling abroad this year. While planning their itinerary is a key focus, it is important to be aware of the potential financial issues involved with international travel.
Understanding the impact of any currency fluctuations against the U.S. dollar and budgeting for your trip are two key planning steps you should take to help ensure a fun and valuable travel experience.
Understanding currency risks
The value of currencies relative to one another can fluctuate over time. This fluctuation can be accelerated by political and economic events that may occur from time to time. If you need to convert dollars into the local currency, you might get more or less of the foreign currency for your dollars at various times.
Credit cards are not immune from currency fluctuations either. You may end up spending more than anticipated if the dollar drops in value significantly between the time you make the credit card transaction and the transaction posts to your account.
Researching Exchange Rates and Conversion Fees
It is important to find a reliable source to research and track currency exchange rates between the U.S. dollar and the currencies in the country or countries that you will be traveling to. There are a number of reliable currency conversion apps that you can download to your phone. The Federal Reserve and a number of major commercial banks also have this type of information on their sites.
Before you travel, you will want to research rates from different sources such as banks and currency exchange services so that you can have a plan as to where you will be converting currency while traveling if needed.
This is important, as even a small difference in the exchange rate can add significant costs to your activities and purchases while traveling.
Budgeting and Preparing Finances
Whether traveling domestically or internationally, having a budget for your trip allows you to plan and set aside money for the trip over time. This is not to say that you will not incur some spontaneous expenses while traveling, but having a solid budget in place helps you plan out the bulk of the costs for the trip.
The costs of your flight and lodging should be easiest to estimate. You can do some online research through travel sites and other sources to estimate the cost of food and travel to different regional destinations while traveling. Perhaps you will be staying in a city but want to travel to see certain sites within the country or region. Planning for the cost of these excursions can help keep costs in line.
There are pros and cons to both carrying cash and using credit cards. Converting money to the currency in the country you will be traveling to locks in a currency exchange rate and mitigates the risk of an unfavorable rate when you are actually traveling. The downside to carrying a lot of cash with you is the possibility of being robbed.
Credit cards are a convenient way to pay for things while traveling, but you are at the mercy of the exchange rate in effect when you spend money, plus any extra fees your credit card company may charge for purchases made outside of the United States.
If you plan to use a credit or debit card for purchases while traveling abroad, it is a good idea to notify your bank or the card issuer of your plans so they will not inadvertently cancel your card mid-trip, potentially leaving you stranded without the means to pay for expenses.
Travel Insurance and Currency Protection Products
Those who will be traveling abroad should consider purchasing travel insurance for their trip. This is a relatively inexpensive way to handle trip disruptions such as lost baggage or a travel delay. Many credit card companies offer these policies, especially those that specialize in being good cards for travel. Policies are available through some private insurers as well.
Just as with your investment portfolio, you should consider diversifying your payment options while traveling abroad. Having some local currency, a solid travel credit card and a prepaid travel card that you can use to make payments for goods and services in the local currency.
Monitoring Accounts and Reporting Suspicious Activity
It is always a good idea to monitor activity in your bank and credit card accounts, but this is especially true when traveling. Transaction systems in the country in which you are staying may or may not have proper security in place. In addition, be sure to keep copies of receipts for all transactions as a record of what you did and did not spend.
You will also want to take steps to keep data safe while traveling. If you use the wi-fi at your hotel, consider using a VPN (virtual private network). Be sure to clear your internet browser after each use to delete cookies, browsing history, cache and other files. Hackers can access your private information via your browser.
Protecting your finances and managing currency risks while traveling abroad is vital and can help ensure you can focus on enjoying your trip rather than worrying about the added costs that can arise from having to exchange currency at high rates. Consider the strategies suggested above to ensure a smooth and financially secure trip.
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