Leaving to see the world without a return ticket, taking a road trip on the west coast, settling in Andalusia for six months to learn Spanish, treating yourself to an unforgettable getaway break in Bali: after years of confinement, we more than ever want to realize this kind of dream! Here are a few ways to plan – and finance – a long-term trip, up to your expectations and within your means.
To achieve the trip of your dreams, all you need to do is take the time to plan your project well and, above all, use your resources wisely to get to your destination. How to budget such an expense without putting your financial future at risk? We asked the question – in fact, several questions! – to Angela Iermieri, financial planner at Desjardins.
TFSA, RRSP, line of credit: what should be used first to finance a long trip?“It is always preferable to avoid resorting to credit as much as possible, slice Angela Iermieri. The TFSA is the preferred vehicle for projects that require a few years of planning, since withdrawals are not taxable. The RRSP could also be an attractive option if, for example, the income earned or expected for the year of the withdrawal is nil or low. This is also what can make it a tool of choice for financing a sabbatical year. Remember that amounts withdrawn from an RRSP are taxable and are added to income. The lower it is, the higher the tax rate will be. That said, regardless of the investment vehicle chosen, saving for a travel plan should not interfere with the achievement of financial goals for children’s education or retirement. »
How to deal with the unexpected?Should you dip into your emergency fund to deal with the unexpected that may arise during a stay abroad? The answer is no: it is better to build up a separate cushion and integrate it into the budget allocated to the trip. “When planning, you have to properly assess the risks and plan an amount to deal with any pitfalls,” adds Angela Iermieri. Frequent travelers should also inform their banking institution and their credit card providers of the itinerary and duration of the trip, notify their home insurer, check the coverage offered by insurance (health, travel), inform the RAMQ of the length of stay and, finally, update their will to leave with peace of mind.
What is the impact of current stock market fluctuations on its investments and the budget allocated to the travel project?“The sums invested in the stock markets should always be used to achieve medium and long-term objectives and respect your risk tolerance,” explains the financial planner. Thus, the short-term fluctuation of the markets should not have an impact on your investment strategy, and you should rather stay the course on your objectives. You should know that when you use the TFSA, for a trip for example, it is possible that the amount you had in mind will not be reached at the time of the withdrawal.
How to contribute to your TFSA strategically in preparation for a trip?In the context of the current stock market, one might wonder whether it is more advantageous to wait to contribute to one’s TFSA, or whether it is better to spread the contributions over the year in an attempt to take advantage of periods when the market. “It’s easier to reach your financial goal if you have a savings strategy in place,” emphasizes Angela Iermieri. She advises determining the monthly amount to save and including this amount in a monthly budget, which allows aspiring travelers to prevent oversights and save systematically.
How can you maximize the use of your TFSA?“The annual TFSA contribution limit for 2022 is $6,000,” says Angela Iermieri. However, since the contribution rights are cumulative, it is possible to contribute all the available rights from previous years as of 2009, or since the age of 18. Remember that the sums withdrawn generate contribution room for the following year. This investment vehicle is therefore well suited to carrying out major projects!
Three scenarios to see the country
To find out more about the TFSA: desjardins.com/celi
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