Debt and Holiday Spending

Happy HolidaysAre you ready for the holiday rush and buying spree? Traditionally, the holidays bring us a time of sharing and giving. But the cost of giving has increased over the years and you need to be aware of the burden it could put on your financial situation. With the change in most individual’s financial situation over the past year, this is a good time to reevaluate your holiday gift giving.

Most families spend around $500 on holiday gifts. If you put all those gifts on your credit card, the end result may surprise you. Do you have any idea how long you will be paying off those holiday gifts if you can only make the minimum payment each month? Let’s do some math:

$500 of holiday gifts: Let’s say you charge $500 on your credit card and only make the minimum monthly payment of $20. Some credit cards now are around the 19.99% interest rate for long period payoffs, you will be paying on those holiday gifts for 3 years! And to top it off, you will be paying the credit card company an additional $153 in interest (see Bank Rate website – www.bankrate.com/calculators/credit-cards/credit-card-payoff-calculator.aspx ).

What if your gifts top the $1000 mark: Now you have an after-the-holidays credit card bill starting at $1000, with the same $20 of minimum monthly payment and 19.99% interest rate. Are you sitting down? It will take you 9 years to pay off those gifts you purchased! The credit card company will be happy because you will pay them $1,167 in interest. Yes, that is correct you will be giving $1000 worth of holiday gifts to your friends and family, plus over time more than a $1000 gift to your credit card company.

Not to be a Scrooge, but there is a downside to credit card use if you can not pay it off in a month or two. Another option is the cash envelope and gift list method. Make a list of people you will be buying for, a dollar amount for each person and some great gift ideas you know they will love. Now hit the mall with list and cash envelope in hand. Your goal is not to purchase more than you have in your envelope.

A last tip to remember: the holidays are not always about the purchased gifts. Think back on all the unwanted, unneeded or forgotten gifts you have received over the years. If you were able to have something different from the giver, what would it have been?  What were the best holiday gifts you have received? Was it the homemade cookies, the framed children’s art work or just being able to spend time with your family and friends? The holidays are truly about sharing and giving; think about using your heart and mind instead of your credit card. Have a Happy and Financially Safe holiday!

Kimberly J. Howard, CFP®, CRPC® is a Certified Financial Planner and the owner of KJH Financial Services, a Fee-Only practice located in Newton, MA and Denver, CO (781-413-4879). Please visit us at www.kjhfinancialservices.com or email Kim at kim@kjhfinancialservices.com. Follow us on Twitter @KimHowardCFP.

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Financial Resolutions for 2016

New YearsMaking your New Year’s resolutions. Every year people decide on changes for the coming year. Include your financial life for 2016. Let’s take a look at some ideas.

Investigate 401k Employer Matching Contributions:  Most 401k plans provide for employer matching contributions. The match consists of the employer contributing a certain dollar amount to your 401k account based on the dollar amount you contribute. For example, your 401k plan has a dollar for dollar employer match up to $1500. For every dollar you contribute to your account, your employer will also contribute the same amount to your account. Once you have contributed $1500, your employer will stop contributing. Think about it – you put in $1500 and your employer puts in $1500, now your 401k account is worth $3000! That is called ‘free money’ from your employer. Each plan is different so you need to check with your Human Resource manager to determine about your employer’s matching contributions.

Start A Savings Account:  Are you always having problems saving? A good solution is to have a set dollar amount automatically taken from your paycheck and deposited into a separate account. This account can be a saving, money market or mutual fund account. Start off slow, $25, $50 or $100 each month. Come June, you should double the amount. If you deposited $25 a month and double to $50 in June, by this time next year you will have $475 extra. Your deposit amount is less than a dollar a day which is less than one McDonald’s coffee a day. Put away $50 a month, double to $100 in June, and you will have $950 at the end of the year. For those able to save $100 a month, then double to $200 in June, a total of $1900 will be your savings for the year.

Track Your Expenses:  Not sure what you and your family are spending on all those expenses? Also, do you have trouble staying on those day-to-day budgets? Try this tip:

Day 1: Spending no more than 30 minutes, write down all your monthly fixed expenses (examples include: mortgage/rent, internet, and car payments) and what dollar amount you spent on each. Do this first step from your memory.

Day 2: Again no more than 30 minutes, look through your checkbook and see what monthly expenses you have forgotten and correct any amounts you misquoted on Day 1. Also, add in any monthly variable expenses (examples include: clothing, groceries, car maintenance and fuel, and home utilities such as electricity, gas/oil and water).

Day 3: Still just 30 minutes, pull out those credit card bills and come to terms with what and how much you charge on your credit cards. Plus, be sure and note all finance charges and late fees.

Day 4: Pull all those expenses together and see if there are any revelations. At this point, you have some good information. Now, you have the choice to modify your spending habits.

 

These financial tips can begin with the New Year and last a life time!