Don't let a year out leave a gap in your finances

Esther Shaw advises how not to break the bank while trotting the globe

With a university place secured and deferred for a year, hordes of school-leavers will be preparing to pack their rucksacks and head off to far-flung corners of the globe – as will many graduates planning one last bit of freedom before settling in to the world of work.

A gap year offers the perfect opportunity for sun, sea, sand and adventure, but the experience can have a serious purpose too. Many "gappers" opt to learn new skills in developing countries by volunteering for community or environmental projects, such as those run by Raleigh International.

But be warned: even a trip such as that could quickly run into thousands of pounds. So, between poring over guidebooks and scouring the web deciding where to go and what to do, devote some time to working out how you are going to finance your travels.

Budget

Before you get anywhere near buying your plane tickets, try to calculate how much the trip is likely to cost in total, says Justin Modray, from the independent financial adviser (IFA) Bestinvest. "You'll need to factor in all travel and accommodation costs, along with food, subsistence and sightseeing – plus the costs of any visas and insurance," he says. "Once you've done this, add on a further 10-20 per cent, as you'll invariably end up spending more."

Philippa Gee from the IFA Torquil Clark recommends that gappers draw up a weekly budget. She also suggests setting up online bank accounts so you can keep track of your money while on the move, and that you take a small notebook with you to jot down what you're spending each day.

Save Up

While it is common for gappers to work their way around the globe, the best way to fund your trip is to save some money before you go, says Anna Bowes from the IFA AWD Chase de Vere. One way of doing this is by working in the UK before heading overseas, as this allows you to put together a cash reserve.

"It's worth making this money work as hard as possible while you're overseas, so choose your bank account carefully," says Modray. "As well as looking for a decent rate of interest, you'll also need to think about how you'll get your hands on the money when you're away." He suggests a good online savings account, such as Sainsbury's Bank, currently paying 6.25 per cent.

Stuart Glendinning from price comparison service Moneysupermarket.com advises those taking a gap year after university to get a graduate bank account with an overdraft facility. "Prospective travellers with a good track record may find their bank will extend the facility temporarily," he says.

Clear Your Debts

If you have debts before you leave, they will only look worse when you return in a year, warns Modray. "The first thing you need to ask yourself is whether you can actually afford a gap year," he says. " If you think your savings – plus earnings when you work overseas – will cover the cost of the trip, then arguably it is still viable. But do ensure you don't pay more than you need to on existing debts while away." If, for example, your loan or credit card requires a minimum monthly payment, make sure it will be met while you're away, and try to transfer any credit card debt to a 0 per cent offer.

Working Overseas

If you're considering working while you travel, find out if you need a work permit or visa, says Susan Griffith, the author of Work Your Way Around the World. Those who do take jobs overseas should try to get paid in cash – unless you're likely to stay in one place for much of the year, says Modray. If you are going to stay put, it might make sense to open a local bank account.

Spending Overseas

Gappers are likely to use their debit card for everyday transactions. But be aware of the hidden costs, warns Glendinning. Most providers levy a " loading fee" of around 2.75 per cent on all purchases made abroad; many also charge a handling fee of up to 2 per cent of the transaction if you use your card to withdraw cash at a foreign ATM. Nationwide building society is one of the few providers that do not levy a foreign currency charge on purchases and cash transactions.

If you take a credit card, adds Bowes, choose one with low handling charges for foreign usage. "You may want to limit credit card use just for emergencies," she says. "Borrowing to fund your trip can add insult to injury if you have existing student debt, or are expecting to build some up when you get back home. Make sure you get the lowest interest rate possible on any credit card spending."

Consider taking one of the pre-pay currency cards now available. These can be "reloaded" with money online, over the phone or at an appointed agent. The cards are a kind of hybrid of a debit card and travellers' cheque, offering the convenience of the former and the security of the latter. But watch out: they can carry quite punitive charges. Some charge for taking the card out to begin with. Others impose a fee on each top-up. And most also charge if you cancel your card. The Travelex Cash Passport doesn't charge an application or monthly fee, but it should only be used for purchases as its ATM charge is £2.50, according to Moneysupermarket.com.

Travel Insurance

One thing you can't afford to ignore is travel insurance. If you head off without it and things go wrong, you could find yourself faced with medical bills and repatriation expenses running into thousands of pounds.

"The costs and level of cover vary widely, so shop around for the best deal, making use of price comparison websites," says Modray. " Don't rely on the 'free' cover that is sometimes bundled with credit cards and bank accounts, as it's unlikely to be sufficient."

Look for a good level of cover for the things that are important to you, says Debra Williams, the managing director of the price comparison service Confused.com. "As a guideline, we recommend £2m for medical expenses, £1m for personal liability cover, adequate cancellation cover of at least the value of your holiday, £1,500 for your baggage and £250 for your cash," she says.

If you're travelling in Europe, make sure you apply for the European Health Insurance Card (EHIC), which entitles you to reduced-cost or free healthcare with EU member countries. However, it should not be used as a substitute for travel insurance as it won't cover all your medical treatment, warns James Harrison from the price comparison service www.insurancewide.com . "For longer trips, consider a specific backpacker's policy," he says. " Make sure you have specific cover for any planned 'hazardous activities' such as rafting, bungee jumping or skydiving. Some activities are completely excluded from policies unless you buy extra cover."

And remember, no insurer will pay out if the Foreign Office has advised British travellers not to visit the country you're in.

'I've been saving all the tips from my bar job'

Gaz Morris, 24, from Chester, is planning to go to Australia and New Zealand in November, and has been holding down two jobs to try and build up sufficient funds.

Having finished his A-levels two years ago, Gaz is still toying with the idea of going to university, but, before then, he wants to take a few months out travelling.

For the past two years he has been studying at a music college in Liverpool and working part-time around his studies; having finished the course, he has started to work full-time.

Gaz has been very disciplined about putting aside money for his trip: to date, he has amassed about £3,500.

"I have tried to work out a budget for the amount I'll need each month when I'm travelling – although some months will be cheaper, as I'll be staying with friends," he says. "I've also been saving all my tips from my bar work, and selling items on eBay to make a bit more extra cash."

Gaz plans to work in either Australia or New Zealand to help fund his travels.

"I'd like to do bar work, although I've heard it's quite competitive," he says. "I'd also like to try fruit picking."

'I found it hard to budget'

Sarah Feist, 22, who has just finished her first year at Brunel University, took a gap year between leaving school and starting her course in drama, film and television studies.

Sarah was fortunate to receive a sum of money from her parents when she reached 18, which helped to fund her travels through Australia, New Zealand and Singapore, but she admits that she was bad at budgeting – and spent more money than she planned to in the first few months of being away.

"This was my first proper big trip, as I'd only ever been on holiday in Europe before that," she says. "I didn't have a clue about money aged 18 and had to get my parents to send me more cash within a few months of being abroad."

Sarah says that while she did try to budget during her gap year, she didn't find it easy.

"I ended up spending money more quickly than I expected," she says. "Although it helped a lot when I worked for three months in Australia. I did a variety of different jobs, including a period working in telesales in Sydney, and this helped me understand the value of money a lot more."

Sarah also encountered problems getting money transferred to her from the UK – and ended up spending a few days with no money at all.

"This certainly made me take my finances more seriously," she says. "The whole trip was certainly a learning experience. Since getting back, I've been able to apply the things I learnt to the way I manage my money as a student, and I'm now a lot better at staying on top of my finances."

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Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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