HOLIDAY SPENDING
Don't Go Overboard
| The holidays can be a stressful time, both emotionally and financially. We all have heart-warming childhood memories that we’d like to recreate year after year with our own families and friends. Unfortunately, too many people pay a heavy price when it comes to the tradition of giving gifts. A combination of emotional spending, last-minute shopping and just plain, poor money-management compels well-meaning individuals to buy more than they planned. Especially in uncertain times, many feel a need to be extravagant and shop in order to restore a sense of normalcy to their lives. Indeed, according to the American Sociological Review, Christmas, Kwanzaa and Hanukkah gifts take a 4% bite out of our income, on average, every year. (So, if you and your spouse earn a combined $50,000, then you just may be facing a holiday spending bill of $2000). The biggest problem, of course, is a failure to budget for the holidays. By the time December rolls around, most of us find that we don’t have enough cash to cover all of the items that are deemed necessary to make the season a complete success. Instead of economizing, many people prefer to “Shop Today, Worry about it Tomorrow.” As a result, credit cards bear the brunt of Christmas spending. Come January, consumers are stuck with a stocking full of charges Santa could never have imagined. And that’s just the beginning. Let’s take a closer look at how the expenses can add up – long after the New Year’s Eve party hats have been placed back in the closet. Consumers spend approximately $1700 on holiday celebration. That includes gift-giving, travel, entertainment, trees, indoor and outdoor decorations, gift-wrapping, postage, clothes and so on. Typically, it takes about six months to pay off that debt if you foot the bill with plastic. However, if you pay the minimum on your cards each month, an initial balance of $1700 with an APR of 17% will cost you an additional $3290.61 in interest -- for a total of $4990.61 -- and take nearly 25 years to pay off. Repeat the process year after year, and the problem compounds exponentially. Think about it: while you continue to pay the minimum for your son’s long-forgotten video game, you have that much less to set aside for an emergency, a nest egg, a comfortable retirement – or next year’s holiday fund. The best gift you can ever give to yourself and your family is financial security. Plan and budget wisely for this holiday, and you’ll be on the right track for years to come. |
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How to Control Your Spending
So, the holidays are approaching fast. But this year, it’s going to be different. You want to banish the Ghost of Christmas Past from your home, along with all of the costly last-minute mistakes he leaves in his wake. Your goal this year is to use cash as much as possible. We all know from experience that if you shop without any dollar limit, your purchases can really get out of hand. The pressure of the holiday exacerbates this pattern. The only way you can truly take care of your family and yourself this season is to rein in your finances. How do you keep it under control? A combination of good budgeting mixed with a lot of cost-saving creativity is the key to smart spending. Let’s focus on planning for this year’s holiday so you get through it comfortably and with your budget intact. |
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| Pay Your Bills First For a truly merry, stress-free holiday season, you should continue to pay all of your bills consistently throughout. Unfortunately, many people forego their credit card obligations this time of year, opting instead to apply whatever money they have to gifts and other expenses related to the holiday. This is a costly mistake and you should not be tempted by it. Late charges can be as high as $35. Additionally, many creditors will increase your APR to well over 20% with just one late payment. As a result, you may find that a tiny fraction of your monthly payments will be applied to the actual bills you charged in December, since the compounded interest and fees will get the lion’s share. When such a scenario occurs, it is very possible to discover you owe more in July than you did when you made your original holiday purchases. Worse still, once the interest rate jumps up, it takes many months of proven, consistent payments before a creditor will consider lowering it back down to where it had been before you went off track. Is it worth it? Of course it’s not!! Economize if you have to, but be sure to factor in your December bills when you draw up your holiday budget. This way, you won’t have to pay a heavy price later on. |
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| What did you spend last year? Take out all of your bills from last year’s holiday and add them up. A good review of previous expenses is important because it requires you to come face to face with the financial impact of your spending. Use our worksheet as a starting point, and to ensure that everything is included. Once you’ve totaled your expenditures, assess the following: How much was paid in cash? How much of that debt did you charge? How much of those balances remain to be paid off? Write it all down on the worksheet. |
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| Draw Up a Budget Next, review your budget from now through the end of the season, listing all upcoming expenses. One important note: Ideally, you should pay off any remaining balances from last year’s holiday before you embark on a new round of shopping. If that is not possible, then your goal is to rid yourself of that debt within 90 days. So, as you figure out your budget, don’t forget to work that in. Credit cards should be a last resort; if you must pull out the plastic, factor that into your budget so that you can wipe it out within three months. After all of your bills are taken care of, determine what can be applied, realistically, to holiday expenses. This is your holiday fund. |
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HOLIDAY SPENDING
DON'T GO OVERBOARD
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SPENDING
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