Travel costs money. No way to get around it: if you want to go from one place to another, it will cost you something. Once you arrive, it will cost you money to stay there. And when you're ready to go home, it'll cost you, too.
When traveling outside your home country – even though I am American, this article will focus on Americans traveling outside the United States, but it applies to people of any nationality – there is another cost that most costs new travelers not & # 39; t take into account. It is the cost of money itself.
There is nothing magical about money. It is an arbitrary construct made by governments and enforced by law as a means of exchanging value. (One of the three formal defining characteristics of money, in fact, is that it must be "sales value.") While some countries choose to use the currency of other countries for the work of their economies for many reasons, most Nation's exercise their sovereign right to create and printing your own unique form of money.
What makes this all a bit ticklish is that the value of one form of money versus another varies, literally constantly, every second daily for 24 hours. exchange rate between two currencies is the amount of one needed to buy a predetermined amount of the other. For example, at some point in writing this article, it costs just over $ 1.95 (USD) to buy one British pound sterling (GBP).
Why currency fluctuates is a function of the international monetary system that is difficult to explain, even in a complex macroeconomic sense. You could imagine that, though they are based on the relative strengths of the two economies as defined by their collective wealth, money in circulation, debt and optimism for future growth, compared to the previous. (The last point is critical; many Americans are surprised or even outraged to learn that the US dollar is not the strongest currency, given that the United States has the largest economy in the world. Courses are about the size of the money supply, not just the size of the economy.)
The reason why courses have such an impact on travelers is because they price at a particular locale don & # 39; t a change based on the course A double cheeseburger at McDonald's Dollar Menu, for example, costs $ 1.00, whether $ 1.00 equals GBP 0.65 or GBP 0.50. If a British woman visits the United States and goes to McDonald's for lunch, she spends dollars, but the dollar they converted from pounds, so measures her personal wealth at home, If the dollar is "weak" to the point – if she can get more dollars for a pound than is usually the case, then he buys that double cheeseburger for less pounds , which means less money even though the dollars spent are the same.
If that was a little confusing, that's understandable. Americans do not travel as much as Europeans say because our country is so big. We use dollars anywhere we travel within our borders, including US territories like Puerto Rico and the Virgin Islands. This is only when we find that we are taking courses. The effect, however, is extremely significant.
When the US dollar is weak against foreign currency, it costs Americans a lot more to live in countries that use that currency. For example, as of January 2007, the British pound and the European Union euro are strong against the dollar. This makes the cost of visiting Europe daily even if you get a cheap plane ticket The longer you stay, the more impact a high exchange rate will have on your budget.
On the other hand, if you travel to a country where the US dollar is strong, you will spend less US money to get the same amount of local currency and thus have a lower cost of living while you are there, For example, the Argentine peso is currently weak against the dollar; take a trip to Buenos Aires and you can take away steaks that would normally cost you about $ 35 for about $ 12 (although the price did not change in terms of pesos).
Here are some tips to keep in check while traveling abroad:
- Write your homework. It is easy to search for prevailing courses at http://www.forex.com. It's a little harder to know what the course is usually is, which is what you need to know to decide if the currency is strong or weak – for example, the measure of US strength against the Japanese yen is based on 100 yen blocks, not 1 yen. Web searches can help.
- Travel to places with weak currency. At any given time, some currencies are strong against the dollar and others weak. If you want to see the world for less money, focus on traveling to places where your money will go further. Prices are constantly changing, so you will eventually get to every place on your list.
- Use cash while you are there. It's hard enough to decide if $ 5 is expensive for a sandwich if you know that $ 5 costs you $ 8.00 at the time you trade. With a credit card, the trade is done using the exchange rate at the time of sale – which you don’t know.
Lastly, think of some countries pegged currency , which means they assign a fixed value to their currency based on money in another country. For years, Argentina linked the value of its peso to the US dollar at 1: 1, forcing the peso to maintain their value. If the country has your currency pegged to yours, ignore the exchange rate because the value you spend does not change. Courses can be a little difficult to grasp and are one of the most complex ideas to truly master. If you plan your trips properly, you can use them to extend your money abroad than you would ever have at home. It's one of the secrets of traveling on a budget.