CHRISTMAS MONEY MISTAKES, HAVE YOU MADE ANY?
Every Christmas holiday season people tend to get caught up in the spending madness. I find that (even for me) it is so easy to get caught up in the enjoyment of giving that the household and holiday budget tends to go right into the toilet.
One minute, you’re checking sales flyers for ideas and the best deals on gifts for your loved ones. Next thing you know you’re buying yourself gifts that you may not be able to afford. You justify it by telling yourself you deserve it and what could be the harm it’s just this once.
- Related: 10 Reasons Why We Love Christmas
So what if it doesn’t fit into the budget you’ve set out for yourself? You’ve got the Discover card to help you out and of course, we all know that you’ll pay it off before you get hit with any interest charges, right? Next thing you know….You got another gift emergency rearing its ugly head and guess what Discover comes to the rescue again.
Sound familiar? Well, let me tell you you’re not alone. Many years ago I was also doing the same exact thing. The National Retail Federation (NRF) says, 40% of shoppers expect to use their credit cards to buy Christmas gifts this year. And in the end, all of these so-called “gifts” could end up costing you thousands of dollars more than you bartered for.
CHRISTMAS CREDIT- WHAT’S IT COSTING YOU
The latest NRF survey shows us that holiday shoppers plan to spend $800 on presents, trees, and everything in between this Christmas season. That’s great when you have planned for the expense thus allowing you to cash flow it. But the entire holiday shebang can and will do a lot of damage when you decide to go into debt via credit cards.
For example, Your credit card charges an interest rate of 18% and you can only pay the minimum each month. It may take you more than seven years to pay this balance off and that’s considering you don’t get assessed any fees on the account. So $800 worth of “gifts” will end up costing you approximately $1,500 thanks to the interest rate your card charges. That’s an extra $700 that’s been tacked onto your Christmas bill for just using other people’s money. I am sure you can understand how it begins to stack up year after year if you continue to use debt to cover Christmas spending.
BETTER WAY TO SPEND
I think we can all agree that going into debt is not the optimal way to spend your hard-earned cash? Especially for gifts.
What is it that you could do with $700 if you did not have to send it to the credit card company for interest? You could use it to supercharge the summer vacation fund, the ski trip fund, or the new living room furniture fund. Need some motivation- just picture yourself sitting on that new couch in your living room or skiing down that mountain with your kids?
Here’s another idea: Put that $700 towards paying down your home mortgage. If you divide $700 by 12, that’s $58.33. Why not apply the $58.33 to the principal on your mortgage each and every month. Theoretically, you could shave $30,253 and four and a half years off your $150,000 (30-year) mortgage loan.
How about the nest egg? Take that cash and throw it into your retirement account and watch it grow. Please consider these numbers: if you invest the $700 every year into a retirement account with good growth mutual funds earning you 10%, you would have accumulated an extra $44,293 (approximately) into the retirement account after 20 years. Wow!
GENERATE A BRIGHTER FUTURE FOR YOURSELF
Let me be clear about this: I’m not saying you can’t or shouldn’t buy Christmas gifts for your family, friends, and loved ones. After all, giving is the best and most fun thing you can do with your money!
But if you can’t afford to buy mom that diamond ring she always wanted this year, then don’t. I am sure she will still love you if all you can afford to give is your love, kindness, and the special homemade Christmas cookies you baked for her this year. And if your parents are anything like mine, mom would rather see you build smart money habits and remain out of debt.
The way to prevent future Christmas holiday debt is to plan. Figure out a budget for next year and stick to the plan. Let’s say you want to budget $1000 for next Christmas. You would divide $1000 by 10 months, then set aside $100 each month starting with January and ending in October. Like magic, you will then have the money you need to purchase all of your holiday gifts and cover miscellaneous expenses for the Christmas holiday without having to turn to plastic.
Most of us have used credit in one form or another during the holiday season and spent years paying for it. Heck even with a budget for the Christmas season here at the Mota household we tend to go over. The difference now that we are out of debt is that we use cash to pay for it instead of credit which in the long run still costs us less because we don’t have to pay interest to a credit card company. Do it now, get a plan in place, and experience less stress during the Christmas holiday.
Did you have a holiday budget this year? Have any tips pertaining to holiday spending that our readers could use? Let us know, leave a comment below