I live in Canada. Most of the time, I love living here. Free healthcare, friendly people, progressive policies, amazing natural landscape, etc. The only thing I like less, though, is our currency, the Canadian dollar. The looney, as it is affectionately called, is quite volatile and can swing quite wildly depending on certain factors (the price of oil being an important one). Consequently, the price a Canadian pays to travel abroad can change significantly from one year to another. Let me give you an example: A 1,000$ US trip to our southern neighbours taken in December 2014 would have cost us roughly 1,150$ CA. However, taking this exact same trip 12 months later, the cost would have soared to almost 1,400$, or 20% more!
Of course, this situation does not only apply to Canadians; anyone traveling abroad is subject to varying currency rates. That is why I wanted to dedicate this post to the strategies I use to try and use currency rates to my advantage and save some money over the long term. It’s definitely not rocket science, but I’ll try and demonstrate how much money doing this simple strategy can save you over time.
The strategy I use for traveling is the same as the one I use for cooking at home: Instead of making a menu and going to the grocery store to buy the ingredients I need, I instead look at what the specials are at the grocery store and then build my menu accordingly.
For traveling, currency rates are the equivalent of grocery store specials. My strategy is therefore to try and visit countries that are on ‘special’ (ie. their currencies are relatively cheap compared to my Canadian dollar) and avoid the ones whose currencies are relatively expensive. Precisely, I make a top 5 or top 10 list of potential destinations, and make my choice according to how cheap the country’s currency is. At decision time, I look at the current exchange rates (compared to the Canadian dollar) of each country on my list, and see how it compares to its average annual exchange rate over the last 10 years.
OK, but how much money can this really save me ?! Well, it depends. The bigger your list of destinations (ie your flexibility), the bigger your potential savings.
An example with numbers
I made a simple example for a person that travels once per year (always in June) between 2010 and 2016, so a totale of 7 trips. This person makes an initial list of 12 countries (USA, France, Brazil, Thailand, Indonesia, Japan, South Korea, Australia, UK, Russia, Turkey, South Africa), decides to never visit the same country twice, and does not modify his/her country list over time.
To calculate the potential savings over that time period, I made two scenarios: One in which our traveler applies the cheap currency strategy, and the other one where he chooses his destinations at random (I chose the countries at random using the RandBetween function in Excel). In the first scenario, I assume our traveler spends the local currency equivalent of 2,500$ Canadian dollars. In the second scenario, the local currency amount for each country calculated in the first scenario is converted to Canadian dollars at the exchange rate when the trip is made. I then summed the total amount spent over the 7 trips in each scenario to see the approximate savings.
The result ? The traveler using the cheap currency strategy saved more than 3,000$ CA over 7 years, an amount that represents close to 20 % ! And remember, this is for the exact same experience: the same countries are visited and the same local amount is spent in each scenario!
Here are the details of my example (exchange rates for 2016 are as of May 27th):
|Year||Scenario 1||Exchange rate||Cost of travel ($CA)||Scenario 2||Exchange rate||Cost of travel ($CA)|
|2013||South Africa||0.106||2 131||Russia||0.032||2500|
|2012||UK||1.599||2 580||South Africa||0.125||2500|
|Total||14 425||Total||17 500|
A little asterisk
Reality is not exactly as simple as the example provided above. First off all, when a currency depreciates, it is possible that the country experienced inflation (higher local prices) too, which would reduce your savings. Also, there might be some reasons why the currency has depreciated (recession, war, instability, etc.) that reduce the appeal of that country for tourists. Your experience would therefore not be the same as when conditions are normal.
So this strategy does not have to be applied systematically (I sure don’t use it that way!), but following the general idea can definitely save you some significant green over time!
I hope this blog helps! If any of you have similar strategies for saving money, let me know in the comments section; I’d love to know!