Budgeting for Travel: Creating the Budget

Now here is the fun topic, money! How much do you need and how do you plan for changes in conversion rates. There are many different strategies for dealing with all of the money issues associated with traveling so I will stick to what works for me.

The first thing is to decide where you are going. Then you need to determine how many days you will be staying in each location, how you prefer to travel (i.e., buses vs. train) between locations, and what specific activities you want to include. Once you have all this done you can proceed with your budgeting.

I like to break my budget into several categories:
1) Items prepaid in USD, such as airfare, train passes, animal care deposits (boarding), and travel insurance. Since these items are prepaid in USD they will not directly influence your travel budget when conversion rates fluctuate.

2) Items prepaid in local currency (non-USD), such as individual train tickets, bus tickets, metro cards (public transportation), theatre/theater shows, tickets for sights sold online (allow you to skip the queue), tour deposits, and hotel/lodging deposits. This category encompasses anything you buy or pay for in non-USD currency before you actually start your trip. I recommend using a credit card that does not charge a foreign conversion fee (such as Capital One) to pay for these items. Until these items are paid for, the fluctuation of conversion rates will influence your budget. However, once you pay for each item, the rate is locked and will no longer be a factor.

3) Items paid while traveling in local currency (non-USD), such as meals (food/drink), hotel/lodging, attractions/tours, and miscellaneous spending. In my budget I prefer to further subdivide each of these items into cash and credit categories so that I am able to determine how much cash I will need on hand or in my account. There are several methods you can use to estimate costs of meals, some use a basic amount for specific countries/ areas (see Rick Steves), while I like to research restaurants in the area online and estimate on the high side the cost of my meals per day. I figure it is better to have left over money, than not enough. I would recommend a similar policy for lodgings, but to be honest I always have my lodgings and price pre-reserved before leaving (I am am an obsessive planner after all).

4) Items paid after traveling (in USD), such as animal care (boarding), cell phone usage (worldwide roaming), and airport parking. Like items prepaid in USD, the items in this category will not directly influence your travel budget when conversion rates fluctuate.

Our next step is to get an estimate for conversion rates. This is one of the most difficult areas to estimate (it is how most people in the financial sector make their money). The strategy I use is to find a tool (such as Yahoo! Finance Currency Convertor), that will show me the high value of the conversion rate over a 1 to 5 year period. I then convert 1 of whatever local currency I will be using (€, £, ¥, etc.) to $ (USD). In Yahoo! Finance Currency Convertor, convert the currency, click "View 5 Day Trend," and then click whatever date range you prefer under "Range" (i.e., 3m, 1y, 2y, 5y). If the rates look to be somewhat stable or predictable (repeating within a common range) I use the highest conversion rate historically within the last 5 years to plan my budget (this will not work well if the rate is trending higher that it has historically).

Keep in mind, this is merely what I do, but it is not the end all all be all solution (if that is what you are looking for then I recommend going to school to be a money markets strategist to better understand the market).Please keep in mind I am not responsible if the rates climb higher than you planned for. If this is a legitimate concern of yours, calculate what the highest rate you can afford is, buy travel insurance that will let you cancel for any reason (that will reimburse you 100%), and watch the rates before you leave. If the actual rate approaches your maximum affordable rate, bail out and cancel your trip.

So now that you have an idea of all your costs and an estimated conversion rate it is time to construct the budget. Open a spreadsheet (i.e., Excel) and under the first column enter all your costs in local currency (non-USD), grouping or subdividing as desired. Leave any items that will be paid in USD blank for now. In the second column place the conversion rate you settled upon for your trip. In the third column enter the USD costs (if they are known), otherwise leave all non-USD costs blank for now. I like to add two more columns to use for descriptions of each item and to place a hyperlink, when applicable.

Now we begin the calculations portion, we need to be able to observe all categories from equal points of reference. To accomplish this we need to put together conversions between the two different types of money.

Let's start with all the items you do not have USD values for. In the corresponding USD column (3rd column cell that is empty), enter a formula that multiplies the non-USD cost (1st column cell) by the conversion rate (2nd column cell). An example formula for items in row 2 using Excel would be "= a2 * b2". Copy into each applicable cell.

Now let's move onto the USD items that have empty local currency costs (1st column cells that empty). In the empty cell enter a formula that divides the USD cost by the conversion rate. An example formula for items in row 5 using Excel would be "= c5 / b5". Copy into each applicable cell.

Now all costs are equally expressed in both USD and local currency. In the bottom of each column we can add a total function for both currencies ("= sum(a1:a24)", where row 24 is the last row of costs) and an average function function for the conversion rate ("= Average(b1:b24)"). If you are fairly knowledgeable about spreadsheet functions you can add graphs/charts or some more complex calculations, such as actual miscellaneous spending per day amounts that are dynamically updated based on the actual costs previously spent per day.

Remember when you calculate costs to do so for your entire party, not just one person (unless your the only one traveling). Also remember to update the conversion rate to match the actual conversion rate for items as you pay for them. Of course there is always the option of ball parking this whole effort and determining the actual damage, I mean cost, when you get home.


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