As our tummies grow more plump with sugar cookies, rum punch, and that big holiday meal, our wallets are — not surprisingly — much slimmer by the time we ring in the New Year.
What, if anything, can you do to recover as quickly from your over-spending as you hopefully will recover from whatever it is in which you over-indulge on New Year’s Eve?
Here are 10 Tips and Rules to guide your post-holiday financial concerns:
Make a List
The next time you leave the house for the purpose of shopping, make sure to take time to make a list. Then, stick to it. It’s a proven fact that list-shoppers spend less than those who head to the store with only a vague notion of what they want to purchase.
Here’s the rule: If it’s not on the list, it doesn’t end up in your cart.
Skip the Sale Items
Those sale items you find which look like such a bargain only make a deeper dent in your finances if the item isn’t on your list. While you might “save” 75% of the retail price, you’ll still spend something.
Spending nothing is better than something, even if it’s “a deal.”
Here’s the rule: If it’s not on your list, it doesn’t end up in your cart. (Sound familiar?)
Cut Up the Credit Cards
Using a credit card is the fastest way to dig yourself into debt. Switch to a debit card. It allows you to shop online. It allows you to avoid carrying cash. Most importantly, it allows you to be free from the chains of credit card companies who are making a mint off of the general consumer’s inability to spend within their means.
When using your debit card, you can use it like a credit card. In other words, there is no reason to have to remember yet another pin number. Nearly every store, online or otherwise, accepts a debit card as a “credit” card. Just say, “Credit, please.” The cashier will ring you through without the necessity of entering a pin number.
Here’s the rule: If you don’t have the money, don’t spend it.
Open a Spendings Account
What’s a Spendings Account, you say? It’s an account into which you put the amount of money you have to spend on non-essentials. This, of course, assumes that you are budgeting your money. That goes without saying (even though I just said it.)
Most banks offer free checking accounts. Take advantage of it, and open your Spendings Account early in the new year. It will come with a debit card. (We just discussed those valuable little pieces of plastic.)
With online banking (perfectly safe, people!), you can easily transfer funds from one account to another. I do it frequently. When I transfer money into my Spendings Account, I only put in the actual amount I can afford to spend on non-necessities. Then, when I shop, I am forced to stick to the budget.
This requires a certain amount of discipline. But if you follow these rules, it will work beautifully:
- Still haven’t cut up the credit cards? At least leave them at home.
- Don’t take or use a debit card that is assigned to another account. Leave it at home.
- Only transfer the amount of funds you can truly afford to dedicate to non-necessities. Otherwise, what’s the point?
Here is a real life example: As I said, I have a Spendings Account. Into it, I put my full budget for holiday gift shopping. As I shopped from my list, I had a basic idea of how much I was spending, and how much I had left to spend. I decided I could splurge on that yummy gourmet coffee we all so adore, having been enticed by its aroma the moment I entered a particular store. So, I did.
All of my gift shopping done, I then decided I would splurge (again) on a bottle of wine to enjoy on Christmas Eve. And that’s when I got hit with the benefit of the Spendings Account limit; my debit card refused the purchase!
It was a “wake up and smell the freedom of being debt free” moment, absolutely! If I’d had a credit card with me, I likely would’ve bought that bottle of wine, and more. (I really wanted that adorable sweater that was on sale. Seriously. It would’ve looked so nice on me!) Come January, I’d face what many will face: Debt! But, my use of the debit card associated with my Spendings Account means I’ll enter the New Year without the burden of over-spending.
Here’s the rule: Open a Spendings Account, and use it only as its intended to be used. You’ll thank me later.
Spend Twice as Much on Your Debt as You Do on Yourself
Here’s what I mean: If you have $10,000 in credit card debt, and you are only making the minimum payment, you’ll go to your grave having paid something like $99.00 for that $6.00 cup of coffee. So, start spending more on paying down that debt than you are spending on yourself (or others) when you shop.
If you spend $100 a week on non-essentials like gourmet coffee, lunch out with the girls, and the nail salon, you should be spending $200 a week toward paying down your credit debt. Don’t have $300 a week to go toward these things? Then don’t spend $100 on non-essentials to begin with!
Here’s the rule: The less you spend on yourself or others for non-essentials, the more you can spend to pay down your credit card debt.
Again, this means you need to determine a budget. You’ll find lots of advice on how to do this, but take it from someone who knows how to live comfortably without much income: There’s a simple way to figure out your budget without the need of a financial adviser. This takes us to our next rule ….
Make a Budget
Why don’t more people use a budget? There are likely several reasons. Many people are intimidated by math, and the word “budget” brings to mind calculations. So, they avoid it altogether. Still others don’t like the idea of being “controlled” or “limited” by a budget; these folks would rather be controlled and limited by debt, I suppose.
But a budget is essential to financial health. Can you imagine a Fortune 500 company that doesn’t operate on a budget? It’s inconceivable!
A budget is simple, really. You don’t need to hire an expert. And you don’t need a fancy app (though there are some cool programs out there!) All you need is paper, pen, and a way to look up the last few months of expenses. Then, lay it all out.
You’ll want to figure out your monthly expenses, on average. Here’s how:
1. First, write down all of the necessities and the average monthly cost associated with that necessity: mortgage or rent, car payment, insurance premiums, loan payments, utilities, etc. For those things like insurance premiums that you pay quarterly, determine the monthly average. Total it all up. Whatever number you come up with is your average monthly expense.
2. Now, make a list of your income. Include average interest earnings, if you have them.
3. Subtract expenses from income. Do you have anything left? If you do, that is your surplus. BUT, don’t think it can all go toward shopping sprees!
Smart Use of Your Surplus
For those of you fortunate enough to have any surplus after paying for necessities, you’ll quickly find yourself deeper in debt if you don’t manage that money. Divide the surplus up this way:
- Take half of it, and allocate it to “savings”. Seriously. Then, make sure to make a monthly deposit for that amount into a hard-to-access savings account. You’ll thank me when the car breaks down or the roof begins to leak.
- Take 3/4 of the remaining half, and increase the amount you spend to reduce your debt. Seriously. There’s no reason to pay up to 30% interest for that 90 minute movie you charged, or the fabulous manicure that lasted less than a week. Reduce that debt as fast as you can — and, again, cut up those damn cards!
- The remaining 1/4 of the surplus is your fun money. It goes into your Spendings Account. And nothing more. That’s it. When it’s gone, it’s gone. Until next month.
Savings vs. Credit Card Debt
Some experts say that it doesn’t make sense to earn 0.5 in a money market savings account, for example, when you’re paying 18% – 30% interest on credit card debt. And while this logically seems true, it overlooks the reality of what happens when someone is unable to pay for those unexpected-but-not-unforeseen expenses like flat tires, faulty refrigerators, and fines for fast driving, etc.
If you don’t have savings for these “emergency” expenses, you’ll wind up charging it, right? That, in turn, increases your credit card debt.
While it may not make sense to save for retirement while you’re simply trying to survive financially, it does make sense to prepare for emergencies that will arise in the not-so-distant future. This is just one step in an effort to reduce your credit card debt by allowing for cash payment in an emergency.
The only way to end the cycle is to follow these simple rules I’ve outlined for you.
A Word About Windfalls
They happen. Not often enough, but they do happen. Just when we think there’s no way to pay for another tank of gasoline, we open the mail we otherwise tend to ignore and find an insurance refund check. Or, bless her heart, Grandma thought it was your birthday again this month, and sent another $75 check. Or, maybe you are the recipient of some class action payout due to some purchase you made a decade ago.
Whatever the source, a windfall will tempt even the tightest wad to splurge a little.
Here’s the rule about windfalls: Use 100% of it to pay off debt. Period.
Cut Out Silly Spending
What is “silly spending”? Quite simply, it’s money that you spend that doesn’t need to be spent. Here are some examples:
- Cut out the sodas when dining out. At $2 or more a pop (pun intended), you’ll spend $10 (including tax and tip) for a party of 4, just for those bottomless pits of sweet acid. Instead, order water with extra lemon. Take advantage of those free packs of sweetener on the table, and you’ll have a nice glass of free lemonade to wash down your meal.
- Pay at the pump. If you tend to be a “pay inside” kind of person, you’re likely spending up to $20 or more a week on impulse purchases from your local fuel center — things like gum, candy, drinks, and bags of chips. If you never walk inside, you won’t buy.
- Buy generic. I still don’t get it when I see someone put a can of brand name green beans into their shopping cart. One shelf down, you can buy two generic cans for the price of one brand name — and they are the same dang green beans! Have you ever Wondered why someone would pay $1.50 for brand-name bread? The generic version is less than a dollar. At my store, it is 67 cents. It’s bread, people!
- Shop online when you must shop. This is tricky, because it refers only to sites where you can find genuine savings on the items you need. Shopping clubs like Overstock.com and the newer Beezid.com are two good examples. You might also want to take advantage of gift-card sites where you can purchase a $50 card for much less.
- Check out All4Free.com — you might find something useful.
- Shop Craigslist and other similar sites for high ticket items. If you haven’t spent any time perusing the “isles” of Craigslist, it’s time. Look specifically for the free categories. Then, type in the item you’re searching for in the search button. Chances are, someone is giving it away — or, at least, charging next to nothing for the very item you need.
True story: I recently placed an ad on Craigslist to sell my TotalGym. It’s gathering dust. In the mean time, I saw where someone was giving away his TotalGym. When someone answered my ad, I sent her to the link where she could find the free gym, instead. Sure, I lost a customer — but I didn’t have the heart to charge her for something I knew she could get for free. (Anyone want to buy a gym?)
Sell, Sell, Sell
If you, like many, do not have a surplus in the final column of your budget worksheet, it’s time to figure out how to get out of the red and into the black.
Assuming you are already working as many hours as is reasonable — or, spending that same amount of time looking for a job — it’s time to liquidate some assets.
Your home is full of inventory! From surplus clothing to those dust-collecting chatzky’s, if you have it — someone will buy it.
Take a look around you. Hit one room at a time. Put on your “sales” glasses after you remove your “decorator” glasses. What do you see that you don’t need? Don’t think in terms of “no one would want that.” You did at some point, or you wouldn’t have it, right? Even the junkiest, useless piece of scrap will have value to someone.
Start collecting these items. Put them into a box. Then, hit the keyboards. Your customers are on the internet. As I’ve already mentioned, Craigslist is an excellent utensil for this kind of thing. Take a quick digital photo of your item, upload it, write a brief description and price it low. Keep your email address anonymous, and sit back and wait. It’s like fishing: Some days are better than others, but eventually you’ll get a bite if you are patient.
The trick to making this worth your while is to accumulate enough items to add up to something. 20 items that each sell for an average of $5 (easily do-able) is $100 you can put towards utility bills or, if you have enough already for your necessities, it makes a dent in your debt.
You’ll be amazed — when you dig deep into your closets and drawers — at how much you own that you do not need. You’ll find things you forgot you have; those items, especially, make perfect inventory for increasing your cash.
Here’s the rule: If you own it, you can sell it. If you don’t need the item but need the cash, it’s time to liquidate!
A Word About Gift-Cards
My kids often receive gift-cards from well-meaning family members, but they are often for retail outlets that are inconvenient or uninteresting for these picky consumers.
And, often times a gift-card causes a person to have to spend his or her own cash. Not many other gifts come with this particular caveat. Very few gift-cards allow cash back; thus, if you want to buy a $18.00 item using a $25.00 gift card, the $7.00 is wasted if not otherwise used for merchandise.
For that reason, most people wind up digging into their own pocket. Trying to take advantage of the full $25, a person chooses an item with a $30 sticker, for example. That’s $5 that he otherwise would not have spent. (Sure, it’s only $5, but it adds up!)
If you are considering the use of those cute gift-cards during the “After Christmas Sales”, heed my warning: The retail industry knows! As a result, they inflate prices (even with sale tags) until a week after the holidays. Wait, then use your cards.
If you have a gift card that you really can’t use efficiently, sell it! Sites like CardWoo.com and PlasticJungle.com are perfect for liquidating that plastic and turning it into cash. By selling your unwanted gift-cards, you allow someone else the ability to purchase it and likewise save! Paying it forward is always a good thing, especially when it puts cash in your pocket!
Here’s the rule: Use your gift-cards wisely, or sell them for cash.
A meager amount of self-discipline can result in an infinite amount of freedom, if you dare to care.
If you have some great tips to add to my list, please take a moment to comment. And if you like this article, please “rate it”, below and pass it along to others for their enjoyment!
~Lynda C. Watts