For example, say my budget is $1000 for a trip in Europe. After converting the $1000 into Euros, I am now left with only €777.3 (using today's rate in May, 2013). However, we're not done yet... the average transaction fee for your credit or debit card company to convert currency is 3%. After this 3% fee is applied, you will only be left with €754 to spend on your holiday. In other words, before even leaving home, the $1000 budget you set, is now at €754.
This wouldn't be so bad if the prices were actually cheaper in Europe... only they're not. This means that buying a €4.00 latte from Starbucks because you're on vacation is actually $5.30 on your credit card statement back at home. Small charges will add up quick.
Instead of always planning how you will spend your money, try planning how you will save money... by exchanging it in the most budget friendly way.
Many people suggest using a cash only system when trying to stick to a budget. Nick and I actually prefer the opposite while traveling. While we do travel with some cash in the current currency on hand (since we often travel off the beaten path where credit cards are not often accepted), we feel that credit and debit cards can provide a cheap insurance plan overseas. Of course, the hazard of traveling with credit cards is the temptation of unlimited funds. If racking up your credit card bill is all too easy for you, I do not suggest using a credit card for your travels. However, I would still bring one along, hiding it deep inside your bag, using it ONLY for emergency purposes.
If you can control your credit card use, it is important that you bring the cards with you that will help you spend smart. Almost all credit AND debit cards charge a foreign transaction fee. This is a fee you pay the card company for converting your purchase into USD, and these are often around 3%. The Capital One card however has a 0% transaction fee. Needless to say, this is our card of use with foreign currency. If anyone offers to convert your credit card transaction from the local currency to USD, do yourself a favor and decline their offer. The only reason someone would offer to do extra work on your behalf is for a profit, and they will charge you an astronomical exchange rate to pocket a fee from you.
In addition, many debit cards charge high fees for ATM cash withdrawals outside the U.S. Wells Fargo currently charges a $5 fee for ATM cash withdrawals outside the U.S. and a transaction fee that is 3% of each card purchase made in a foreign currency. If this is the only card you have it would be helpful to know this before you travel to set ground rules. For example: it would be best to use your card for purchases less than $167 (3% of $167 is $5), and to use cash withdrawn from an ATM for purchases more than $167. Following this system would insure you never pay a fee more than $5.
Earlier I mentioned that Nick and I do travel with some cash in the local currency. Currency exchange rates differ between banks, tourist locations, and different countries. Those exchanging the currency for you will make a profit, therefore it is best to have an idea what the currency rate is, so you can be ripped off as little as possible and know what a good rate is. This can be as simple as googling the current rate before your trip.
You'll notice that the rates will be worse at airports and in touristy locations. Additionally, some places (ie: in airports) will also charge a transaction fee in addition to their awful exchange rate. Airline employees: showing your badge will waive you from these fees. For everyone else, avoid exchanging money in the airport. I prefer a local bank for exchanges (either at home or foreign if away from tourist traffic). Most banks can exchange small amounts (less than $1000) on the spot, but some currencies will have to be ordered in. This may take a few days.
Because Nick and I always travel with public transportation, we need to have local currency on us before arriving in a foreign country - this is where planning ahead and utilizing your local bank at home helps. I would not suggest withdrawing and exchanging your full budget however. Instead, take out an amount equivalent to your budget for a couple days, providing a travel insurance for yourself if you get pick pocketed or lose it. (Keep cards in separate locations, on separate people, and away from cash.) To us, an extra $5 here and there in ATM withdrawal fees is worth it and much less than the cost of travel insurance (generally around 8% of the entire trip).
In summary, remember the inevitable fees associated with traveling abroad and plan for them. If you come home from a trip with debt, it will only be that much longer until you can save and travel again.