By Jennifer McDermott, Consumer Advocate at finder.com
International travel is an increasingly popular choice for students and young people. In 2012, youth travelers spent $217 billion on tourism spend worldwide.
Fortunately, it’s getting easier and cheaper to see the world, and you can save big when traveling by making some smart moves with your money.
First, think about what kind of overseas adventure you want. There are many ways to go about it, and volunteer tourism, or what’s come to be known as “voluntourism” is a fast-growing trend. Over 1.5 million volunteers are heading overseas and spending $2 billion each year for a different kind of holiday.
The idea is that volunteers experience a country and culture by working on a local community project (usually in a developing country), and the community benefits from the work of the volunteers. Common examples are working in an orphanage, helping to build a school, and doing conservation work.
Volunteers usually pay a (somewhat) inclusive fee to placement providers. Programs start from about $1,700 for a week long placement in Nepal, for example, and go all the way up to $29,995 for a 27-week, multi-country trip.
Another option is a gap year, a period ranging from three months to two years in which you usually live and work overseas. About 30,000-40,000 American students choose to take a gap year every year, and the numbers continue to grow. In 2015, the American Gap Association reported a 22 percent increase in students enrolling in gap programs over the previous year. The average gap year is usually between 6 to 12 months and costs between $6,500 and $9,000.
But what about managing your money?
No matter how you go about your travels, one thing you’ll have to consider is how you’ll manage your money. Assuming you’ll be working, you’ll probably need to open a bank account in your chosen country to get your wages paid into, and you’ll want a debit card to make everyday purchases easier.
It will usually be much more cost effective than converting your foreign money back to your American account and converting back to foreign money when withdrawing it. There are even ways to travel without using your credit card at all.
Transferring money and converting currencies can be costly – something you want to avoid when backpacking overseas. If you’ve got savings in an American bank account and want to transfer that money into your foreign bank account, or need to transfer costs to a business in a foreign country, you’ve got a couple of options.
Let’s say you’ve saved $10,000 to get you started in sunny Sydney, Australia.
You’ve set up an Australian bank account, and now you need to transfer your funds from your American bank account.
The “old school” way of doing this is a simple bank to bank transfer.
Your bank will have an exchange rate for Australian dollars – let’s say 1 USD = 1.28 AUD.
You’ll be charged a transaction fee (about $35), and in some cases, you might also be charged a receiving fee and other nasties. But let’s give your bank the benefit of the doubt.
With a 1.28 exchange rate and $35 transaction fee, you’re $10,000 USD will get you $12,765 AUD.
You can probably do much better than that.
It’s possible to completely avoid those extra fees by going with an online money transfer provider instead of a bank to bank transfer. The best providers won’t charge transaction or receiving fees and will offer competitive exchange rates.
The closer their advertised exchange rate is to the mid-market rate – the benchmark rate that traders use – the more money you’ll squeeze out of the transaction. You can find the mid-market rate with a quick google search like, “USD to AUD”.
Now let’s compare one of the biggest players in this space, Transfer Wise, one of the winners in the inaugural finder.com International Money Transfer Awards.
Transfer Wise’s exchange rate for Australian dollars is 1 USD = 1.312 AUD, which is very close to the current mid-market rate of 1.32, and there is no transaction or receiving fee. So for your $10,000, you’ll potentially receive $13,120 AUD.
That’s $355 more than what you would have received with the bank transfer example above, and when you’re a young budget traveler, those savings can make a big difference.
Research is key!
So whether you go on a short voluntouring stint or decide to live abroad, a little research about how you move your money internationally is worth your while. Online international money transfer services usually have lower fees and more competitive exchange rates, which could save you hundreds – even thousands – of dollars.
Instead of wasting that money on avoidable fees, use it to travel longer and fund more overseas adventures – you won’t regret it!
P.S.: Do not forget to find out everything about travel insurance.
Jennifer McDermott is Consumer Advocate at personal finance comparison website finder.com. With more than 12 years’ experience under her belt, having analyzed consumer trends in the travel and lifestyle industries, Jennifer loves to uncover interesting issues and trends to help Americans find better deals.