Budget Basics
Now What? 'Tis the Season to Go Bankrupt
By Stephanie AuWerter
Friday, June 24
IT'S JUST ABOUT that time of year again: Time to throw all fiscal responsibility to the wind and spend wildly on gifts, entertaining and travel. Sure, given the lousy economy, many folks are claiming they're going to cut back this holiday season. But be warned: "Once you hit the malls, and you hear those jingle bells, a switch flips and suddenly you forget about your budget," warns Howard Dvorkin, president of Consolidated Credit Counseling Services .
And, unfortunately, the debt accrued during the last two months of the year can
last longer than a fruitcake. Think about it: Are you still paying off last year's
festivities? Since about 60% of us carry credit-card debt, the answer may be "yes."
And by now the kids probably don't even remember whether they got coal or Chicken
Dance Elmo last year. Here are some tips on how to keep your spending in check this
holiday season without being a Scrooge.
Create a Holiday Budget
Before you hit the stores, you should come up with a holiday spending plan. "Most
families can get by on about $1,200," says Cate Williams, president of the Consumer
Credit Counseling Service of Greater Chicago - though that figure will vary widely
depending, in part, on how much traveling you'll do.
Granted, creating a budget for the holidays and sticking to it is about as fun as sipping a diet soda in a room full of eggnog drinkers. But keeping those extra calories in check should make for a significantly happier New Year. So take a moment to consider how much you'll spend on gifts, travel and entertaining. Be sure to factor in expenses like the Christmas tree (if appropriate), holiday cards and, of course, something fabulous to wear on New Year's Eve. "And be careful of the holiday budget busters - the extra string of lights, the gift for the music teacher," warns Williams. The small stuff can really add up - so as the holidays progress, you should try to keep a running tab on what you've spent so far.
Make a List, Check It Twice
Santa is onto something here. Once you have a reasonable idea of how much you want
to spend on a gift for a particular person, it's time to figure out what that gift
should be. And ideally, that should be done in the comfort of your own home. What
you're trying to avoid here is the time-honored holiday tradition of racing through
the mall in a panic, picking up any item that you think someone might like (or maybe
you're too crazed to even care at this point), regardless of price.
Better to reflect on what you'd like to buy someone before you hit the stores. The Internet can be an invaluable resource for this. Even if you don't actually make the purchases online, it's a great way to browse and compare prices, says Steve Rhode, co-founder of Myvesta.org , an online financial-counseling service. You should then bring your shopping list with you when you head to the mall, and try not to stray from it.
Use Plastic Wisely
For those who can handle credit cards responsibly, using plastic for holiday purchases
can be a smart thing to do. That's because credit cards (not debit cards, mind you)
come with consumer protections that may be helpful if there's a problem with your
purchase. Should you buy, say, a faulty computer monitor using your Mastercard,
your credit-card company might reimburse you if the vendor will not. Just be sure
to keep all of your paperwork, especially an itemized receipt, says a Mastercard
spokesman. American Express takes this even further, offering extended warranties
on many items purchased with most of its cards.
On the other hand, charging away with reckless abandon clearly leads to problems. So if possible, try to use one card, says Williams, to make it easier to track how much you've spent. And if you aren't likely to be able to pay off your bill immediately, you should use your lowest-rate card (obviously).
Also, think twice before opening a credit account with a store - even if it offers
you a period of zero interest. Remember, it's only zero if you pay off the balance
in full by the time the offer expires. Once the introductory period has passed (or
if you make a late payment during this time), you'll indeed be charged interest.
And the rates on store cards are notoriously high — the Macy's card, for example,
currently charges 21.6% for customers in most states. Meanwhile, the average rate
for a fixed-rate credit card is currently 13.6%, according to Bankrate.com. So while you might get a one-time discount on purchases for opening the account, it just isn't worth it if you're going to carry a balance.
Get Into the Spirit
Now, it may sound a bit schmaltzy, but perhaps the best way to keep your spending
in check this year is to focus on the true spirit of the holidays. "They're not
about giving things," says Rhode. "They're about sharing the way that you feel,
about sharing emotions. Your friend doesn't need another pair of Isotoner gloves.
Maybe what they would like is for you to take them to lunch. People need to stop
using money to buy love."
