Based in Brooklyn, NY, The Financial Clinic is a non-profit organization that works with working poor Americans and the organizations that serve them to build financial security and improve their financial mobility.
For many people, the New Year means a fresh start, resolution setting, and getting ready for the fresh start that lies ahead. However, for many of these same people, it also brings a hangover. This hangover, however, has nothing to do with the number of champagne bottles popped at the stroke of midnight, but the feeling of the void left in your bank accounts after a season of spending. The holidays are a joyous occasion where love, cheer, and material goods are spread freely amongst your closest friends and family. But the good times can, unfortunately, lead to depression when bank statements start arriving in your mailbox. Luckily, a little planning can go a long way toward making sure a season of giving does not lead to a season of regretting. Planning for the holidays can start at any time. It incorporates both clever savings and spending strategies.
If you feel that you run out of money or get sideswiped by the costs every holiday season, you may have an issue with planning out your expenditures. Every year try to think about all the costs you will incur, from the ingredients for the dinner you want to cook your family, to a list of the individuals you would love to give to this season. Sit down with a piece of paper and ask yourself how much would I like to spend on each item/person. Do a bit of research to confirm that you were in the ballpark for the items and pledge to stick within the budget you set per person or event. You will have a solid estimate of total costs after adding up the individual items. This amount is your starting point. Divide the amount by the time you have left. Although this blog post is being released in November, which doesn’t leave you much time, you can still review the money you have saved throughout the year or simply view this as a jump-off point for next year.
Let’s assume you have $1,000 as your costs, and 2 months left. That means that you need to find $500 a month. If you started in January, that amount would only be $84. Starting early can significantly ease stress. Savings can be found throughout the year by actively plugging spending leaks (fees and charges that can be avoided), reviewing all the products and services you use to see if you can get them at a lower cost (car insurance, cable packages, etc.), and employing consistent savings strategies. A financial coach can help you find these savings.
If the money is not there, many people choose to cover their expenses with a credit card. With the many reward programs available, it can be a great way to lower future costs. You can build enough points to purchase wanted items for free, including vacations. This is only a benefit if you pay off your credit card balance quickly. Otherwise, you can quickly erode the potential savings. This goes twice for those tempting sales during the holidays.
When you are planning your credit card purchase take into account how much it costs (purchase price plus monthly interest) and how quickly can you pay it off in full. You are being charged interest for any balance you do not pay off. Calculating this interest into your total costs will help you make more positive spending decisions. A new TV is only 20% off if you pay the card before they charge you interest. If your interest rate was 24% and all you did was pay the minimum you wouldn’t benefit from the sale at all. In that case, you would actually be paying 4 % more. The minimum would only cover the interest rate. This holds true for any sale but is more important during this season. Use a spending plan so you will know how much you can afford and adjust your expenses accordingly.
Up until now, we have spoken only about those things that cost money and how to plan for them, but let us not forget what the holidays are about: family, friends, and camaraderie. Some of those goals you want to accomplish aren’t tied to your bank balance. You may want to spend more time with family or friends, or get in better shape, or be more grateful, and this is the perfect time of year to work on those resolutions.
Planning out your holiday spending will give you the freedom to enjoy what really matters. Being able to give presents or cook a great meal is a blessing but, in the end, it is rarely what’s remembered. The most memorable and important thing will be the time spent together with loved ones. Don’t lose sight of that. As financial coaches, we work with our customers to focus on those passionately held goals ahead of us, goals that fall in line with those values you hold deeply. This is the time of year to remember and celebrate those values. Happy Holidays!