How to avoid a budgeting nightmare on your next summer holiday

Summer holiday season is now well and truly underway, with sun seekers getting ready to head off to destinations around the world. Whether it's a short city break or a week on the beach, many look forward to this much-anticipated holiday all year. A chance to relax, have fun and recharge for the year ahead.

So, with that in mind, the last thing that anyone wants is to return home and realise that they have massively overspent. While summer holidays should be a chance to enjoy yourself, there are some key rules that should be followed to avoid a holiday spending hangover.

1) Set a holiday budget, but be realistic

The first and most important thing to do before heading on holidays is to set a budget. You should know exactly how much you want to (or are able to) spend during your holiday, and then stick to it. It goes without saying that without a budget, there is no way to track your spending. Importantly though, you should also make sure your budget is realistic. Be honest with yourself and create a budget that reflects how much you really think you'll want to spend.

2) Build in contingency just in case something goes wrong

Once you've worked out your budget, you'll also want to add in contingency, just in case anything goes wrong. Although we don't like to think about it, sometimes things just don't work out the way that you planned. Whether it's a cancelled flight or a medical emergency, make sure you have a plan for how you would pay for unexpected costs and how that might fit into your budget.

3) Find a way to keep track of your spending

Once you've worked out your budget, the next step is to keep track of what you're spending. Whether you've opted to convert your holiday cash in advance, or use your credit or debit card, you'll want to keep a track of what you've spent, and what that means for your budget both in terms of the local currency, and ultimately what it means in your home currency.

4) Be aware of currency fluctuations

Don't get caught out by fluctuating exchange rates. Exchange rates naturally move on world markets, but big political events and announcements can cause them to move much more dramatically. This will naturally have an impact on the value of your budget and how far your budget can go. While you won't want to spend your holiday obsessing about anything that might shift the relative strength of the pound, it is worth keeping an eye on the biggest shifts.

5) Understand your card payment options

If you chose to use your credit or debit card while on holiday abroad, you will usually be presented with two payment options. The first is to pay in the local currency. In this instance, any additional fees from your bank or card provider will be added at a later point, and the conversion rate is not always clear. Alternatively, you can opt to pay in your home currency using dynamic currency conversion (DCC), in which case you see the exact exchange rate being applied. Any additional charges are included at the point of transaction, so the amount shown on the terminal is the total that you will pay.

These are very simple steps, but following them can make a big difference when you come to check your bank balance at the end of your holiday. Having a great time on holiday is of course important, but not if it wreaks havoc on your bank balance for the rest of the year. After all, you want to come back to work feeling happy and refreshed, not full of spending guilt and regret.