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A kind of money madness seizes people at this time of year. The expectation of ever-larger-better-bigger-pricier gifts is aided and abetted by retailers offering deals, promotions, and sales on all manner of shiny baubles and trinkets. Credit card companies have spent the fall season offering to raise your credit limit to make it easy to spend like a billionaire – without actually being one. It all seems like a fairy tale, until the bills come in. Then it’s right back to that Cinderella feeling. Is there a way out of this seasonal spending disorder? Here are a few tips.
Cut spending
That seems like a no-brainer. But as we know, it’s easy to say, but not so easy to do. Here’s how to make a start.
* The best way is to make that proverbial list and check it twice. And do it before you head out the door for those irresistible deals, specials, and so-called one-time only promos. In other words, make a shopping battle plan: know what your objective is, research the best prices and deals (online or even print flyers), match your wants to your resources, then go and get it. Use price-matching offers wherever you can.
* If you’re a serial over-spender, lock away your debit and credit cards. Take only the cash you need when you go out. If really want to use your debit card, top up the account only to the amount you plan to spend. If you go over, your card will be rejected. Do not fall for the “overdraft” trap that banks like to sell you on – that’s simply a cash loan with an obscenely high interest rate. And the meter starts ticking as soon as you stray into “overdraft” territory.
* Avoid impulse purchases! It’s the most commonly committed overspending crime, and it’s what gets most people into trouble, especially if they’re armed with those seductive credit cards.
* Go back to first principles and make a budget. Determine how much you spend each month and subtract it from your take-home pay. If you’re spending more than you make, you’re in a cash crunch. Find out where the cash drains are – usually it’s the seemingly small, day-to-day stuff, like daily trips to the local coffee shop, frequent lunches or dinners out, and impulse purchases of lots of online stuff. Take a close look at your phone and data plans. Are you getting the best deal on data and cell use, or were you suckered into a pricy two-year contract with the promise of a shiny new iPhone? Do you subscribe to eye-wateringly expensive cable TV and streaming services that you never use? Research everything, comparison shop, and ask for discounts and deals.
Understand bad borrowing behavior…and stop it!
Credit cards are deadly. With insanely high borrowing limits offered to anyone and everyone, and loan-shark-type interest rates, irresponsible use of credit cards is probably the fastest way to bankruptcy court. Put a limit on your credit card balance, and use the card only to the extent that you can pay off that balance every month, for sure, without fail.
If you don’t have that sort of discipline – and don’t worry, you’re not alone here – then put your credit card in an ice cube tray, fill it with water, and put it in the freezer. Next time you get the urge to buy that must-have thing, you’ll have to melt the ice cube tray to retrieve your card. By the time you do that, with any luck, the urge will have passed and you’ll have come to your senses.
In other words, your very first step is stop digging yourself a deeper hole! Make a rule for yourself: If you can’t pay cash (or use a debit card), don’t buy it!
Save some money
Sure, that’s what every financial advice-giver says. But how do you do it? Once you’ve got a working budget, the easiest way is to set aside some manageable fixed amount from every paycheque, and put it into an investment account. Make it an automatic transfer from your bank account. How much? Some experts say you should save 10% of your after-tax income. Some experts should get a life! I really doubt that’s possible for most of us. I say set aside whatever you can comfortably afford to, but do it consistently. That’s the real trick: Done regularly, setting aside even $25 or $50 per week can really add up over time. That’s all about the magic of compounding.
Put that $50 a week – say, $200 per month – into a low-risk investment account that generates, say, 4% return compounded annually. Even if you never again increase your monthly saving rate, and that rate of return stays constant for 25 years, your savings will grow to over $102,000!
Setting budgets for the nuts and bolts of your monthly income and outgo are all well and good – and even necessary. But it’s only one part of the personal finance equation. Starting at the top, setting goals, and developing a plan are really the first steps to curing seasonal spending disorder.
Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management for high net worth individuals and families. Contact her directly by phone at 416-828-7159, or by email at rthompson@castlemarkwealth.com for a confidential planning consultation.
Notes and Disclaimer
© 2019 by the Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.
The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.
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