For the majority of us, the summer holidays provide much-needed respite from the stresses of everyday life. It’s a time for catching up with friends and family, going on holidays, attending festivals, and (with luck!) soaking up the summer sun.
But the summer holidays should also come with a financial health warning. According to a recent study by Credit Karma (formerly known as Noddle), 57% of British people spend more money than normal in the summer months, with people typically squandering on average £157 more a month. While some might be able to withstand a slight dip in their savings pots, for others the picture can be very different; according to the research, nearly a quarter of these summer spenders said they rely on credit to fund their extra spending.
The shadow of debt is enough to spoil the summer mood and is in fact a root cause of stress and anxiety at the best of times. Research by KnowYourMoney.co.uk found that almost a quarter (24%) of Brits lose sleep over debt.
So, what can you do to ensure you enjoy the summer holidays without worrying about your pennies?
1. If you don’t know your DTI ratio – calculate it. Planning and due diligence go a long way when it comes to staying out of debt. This all starts with having a clear and realistic understanding of your financial situation – what are your daily, weekly and monthly outgoings and how do these compare to your income?
For instance, despite being a valuable indicator of how much debt a person can realistically take on, many people don’t know what their debt-to-income (DTI) ratio is. If this is you, you’re not alone. According to KnowYourMoney.co.uk’s survey, 39% of Brits don’t know theirs either.
Before committing to any expensive plans which will require you to borrow money, have a go at using an online DTI ratio calculator to better understand how easily you will be able to pay this debt off. The calculation itself is intuitive; it’s simply based on your income and current debt levels.
2. Create a savings pot. On a similar note, it’s also helpful to have a clear idea of how much you want to be spending over the coming months, and create a tailored budget for this purpose. When the sun comes out and your social calendar becomes filled with barbeques, weddings, outings and trips away, it’s incredibly difficult to exercise self-control and stop yourself from making impulsive purchases.
That’s why drawing up a budget in advance, and creating a savings pot to support it, can help you stay on top of your finances. If you’re going on holiday, create a list of your planned expenses such as flights, accommodation, travel insurance and travel spending money. This will establish a savings target to work towards, and from here you can commit to putting aside a certain sum of money every week to ensure you have plenty of financial breathing room when the time comes. What’s more, using this approach will reduce the risk of forgetting a key expense and having to splash your cash on a last-minute purchase at an increased price.
3. Get creative. If you’re concerned that your summer plans might set you back too far financially, consider ways that you can leverage your existing assets to make some of this money back.
For instance, with the growing popularity of online marketplaces like Airbnb and demand for flexible accommodation options, renting out your room or house is certainly an option to keep in mind. Particularly if you’ll be away for an extended period of time, it might make sense to put your existing assets to good use. The same goes for cars, parking spaces and bikes – there’s a marketplace for everything these days!
4. Re-route. Often, the cost of transport takes a significant chunk out of our holiday budget, and can even be the most costly expense of a trip. By being savvy about travel options, you can stretch your budget to get maximum value for your trips.
Those going abroad this summer should see whether taking an indirect flight could cut down your costs. This might not be a solution for everyone, but if you don’t mind spending a couple of hours on a stopover, there is significant cost saving potential to be had.
Another tip is to take a coach instead of a train, as these are far more affordable (although admittedly a slower way to get from Point A to Point B). You can even go abroad by coach – why not take the National Express to Paris instead of the Eurostar, and save yourself some money to spend while you’re there?
5. It’s ok to talk about debt. We’re a nation that’s known for being reserved when it comes to talking about personal finances. Four in ten (41%) of us do not feel comfortable talking about debt with our family and friends, according to knowyourmoney.co.uk’s research.
Whether it stems from embarrassment or a desire to shelter our loved ones from our problems, keeping quiet about money troubles can actually perpetuate the issue and prevent us, as a society, from improving our practices when it comes to our spending habits.
So if the prospect of spending more money than you can afford this summer is causing you stress, speak to you friends, family, or travel companions about it. For one, it’s likely that other people share your concerns. And even better, you can find alternative travel arrangements, activities, or accommodation options to reduce the price tag without sacrificing quality time with the people you love.
It might be easier said than done, but some forethought and financial planning can drastically reduce the stress of planning for the holidays. After all, the summer is a time for relaxing and enjoying yourself, and this will ensure that you’re in a good financial position and primed to make the most of the holidays.
John Ellmore is the director of KnowYourMoney.co.uk, an independent financial comparison website that was launched in 2004. Run by a dedicated team, Know Your Money’s goal is to provide clear, accurate and transparent comparisons for a wide range of financial products.