Saturday, October 6, 2012

How This Backpacker Handles Finances while on Long-Term Travel

I have talked about how a Filipino backpacker like me, a backpacker from a third-world country, can afford long-term travel. However, I have never really talked about how I handle my finances while traveling long-term. It is a something I never really pondered when I was planning my six-month backpacking trip around Asia (which has really extended to, well, almost a year now). Fortunately, a reader emailed asking for tips on how to handle finances for long trips. She specifically asked about how to handle pocket money for an extended trip around Southeast Asia. So it got me thinking. Here are a few things I have learned thus far on how to handle finances while on long-term travel. They apply to short trips, too!

Singaporean Dollars
Mine prrreeecccious Singaporean dollars

1. Traveling with your finances in hard cash US dollars = not good

The old way I used to handle my finances while traveling involved converting my money from one currency to another a number of times—PHP to USD to local currency to USD to PHP. This implies a lot of interbank charges and commissions. The conversion rate you see on the newspaper, the "official rate," is not the conversion rate that will be used by the banks or exchange kiosks who will handle the transaction for you. They will use a "retail rate" which is usually five percent more than the official rate. To illustrate:

Conversion on October 5, 2012
Official Rate Buying 100 USD You pay 4,163.56 PHP.
Retail Rate Buying 100 USD You pay 4,382.69 PHP.

That's a 220-peso difference, and I'm not even including the commission often charged by banks and exchange kiosks on top of the retail rate. Now when you get your US dollars and you arrive at your destination, you then need to convert the dollars to local currency, let's say, Malaysian Ringgit.

Conversion on October 5, 2012
Official Rate Buying 100 MYR You pay 32.76 USD.
Retail Rate Buying 100 MYR You pay 34.49 USD.

That's another 1.73 dollar-difference on top of the 220 pesos on top of whatever commission charged to you by the bank or exchange kiosk. The bad news is, the more money you exchange, the more money you lose in charges and commission. But hey, that's life.

2. Use the ATM route.

Luckily, there is a solution. Getting cash via ATMs is easy in Southeast Asian countries. I think it's even better than currency exchange. The bottom line is this: With ATMs, no matter how much you withdraw, you only get charged a fixed amount per transaction. Whereas with hard cash currency exchange, the more money you exchange, the higher you pay for the transaction. Also, two very important points: (1) the money you get from the machine is in the local currency, and (2) the conversion charge used is usually only two percent, compared to five percent when changing hard cash in banks and exchange kiosks.

I use a Banco de Oro (BDO) debit card everywhere and I know of another traveler who uses a Bank of the Philippine Islands (BPI) card. Both work fine with many local banks in Asia. BDO charges 3 US dollars per transaction on top of any charges the local banks may have. I believe BPI charges the same.

Malaysia, Singapore, Nepal, and China

Based on my experience, banks in Malaysia, Singapore, Nepal and China do not seem to charge you anything for using any of their ATMs. If there are any charges, I noticed that they are very minimal. So I only pay BDO its 3-dollar transaction charge when I take out money in any of those countries. In Malaysia, I use Maybank ATMs. In Singapore, it's United Overseas Bank (UOB). In Nepal, I used Standard Chartered because it's an international bank and it has ATMs in Kathmandu and Pokhara. In China, I noticed that my BDO debit card only works with the Industrial and Commercial Bank of China (ICBC). It's fine. ICBC is everywhere anyway.

Malacca, Malacca
Even old towns have ATMs! This is in Malacca, Malaysia.


Now, in Vietnam, there are bank charges but they are quite reasonable, definitely better than changing hard cash from your currency to the Vietnamese dong. The charge is usually 1.5 to 2 dollars (30,000 to 40,000 dong) on top of my bank's 3-dollar transaction charge. I tend to use Vietcombank in Vietnam. Charge is only 1.5 dollars. Know of any banks that charge less?

With ATMs, no matter how much you withdraw, you only get charged a fixed amount per transaction. Whereas with hard cash currency exchange, the more money you exchange, the higher you pay for the transaction.

Thailand is a little trickier. ATMs in Thailand charge a very hefty fee of 5 dollars (150 baht) on top my bank's 3-dollar transaction charge. So, really, I am paying around 330 pesos every single time I take out money from a Thai bank. Precisely why I only go to get money maybe twice a month. There is one bank though that do not charge this exorbitant 5-dollar fee and that is AEON. The kicker is that AEON ATMs are hard to find and you can only take out money in 1000-baht denominations. Damn it!

Exceptions: Cambodia and Laos

Cambodia and Laos are the exception to the rule. The Cambodian Riel and the Lao Kip are not doing so good. Everyone knows this, especially the locals. So they accept payments in stronger currencies. In Cambodia, you can pay tuktuk drivers and flea market vendors in US dollars. In Laos, the street-side food stall will accept your US dollar and Thai baht bills. Needless to say, larger establishments like hotels and restaurants in both countries also have the capacity to charge you in many major currencies.

3. Get online banking.

When you travel long-term, online banking will be your friend. With online banking, I can access both my debit and credit cards anywhere. I can easily email my bank, too, for whatever. And I can pay my credit card bills online. More importantly, however, this may be the only way to check your funds. When you use your card in a foreign ATM, most of them will not be able to show you your account balance. But hey, when you travel long-term, checking your bank balance won't be your favorite thing in the world. Am I right? Up top? No?

4. Get two debit cards.

I guess this is just the type-A planner in me talking, but I find it extremely reassuring to know that in the event that something goes wrong with my debit card when I use it in a foreign ATM (god forbid, the ATM swallows my card), I will have a back-up card to use wherever I am. You need that kind of security while traveling long-term in a foreign country, right? And because I have online banking, I can easily move funds around. No cause for panic here.

5. Get a credit card.

Having a credit card (to be used responsibly, of course) is extremely helpful. You can book hostels, tours, and flights in the comfort of your own hostel bed (assuming your hostel's WiFi reaches the dorms). The conversion rate most credit card companies use tends to be forgivable, too. Booking sites convert the figures when it learns that your credit card is in another currency. Don't let them. Most of the time, the conversation rate they use is a rip-off. Let your credit card convert it for you. And you never know, by the time the charge is posted, your currency might have done well that day. Or worse, but whatever!

6. Inform your banks that you are traveling long-term.

Finally, and this is an important one, inform your banks that you are traveling long-term and tell them where you are going. I know. You left your old life thinking you can get away from all this. But let's face it. You won't escape them. So just out with it. Plus, they may find it suspicious that your account is being accessed in a remote location when really it's just you trying to get money from a mountain town somewhere. They might block the transaction. No money for you. You don't want that. So call them. Email them. Just tell them.

That about covers everything I know so far. Anything you might want to add? Did I get something incorrect? I am not well-versed in all this finance and banking shiz as well as I want to be. Any input would be greatly appreciated!

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