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For decades people have talked about the largess of people over the holidays translates into big bills and credit card debt in January. This is another area of financial planning where financial professionals can add value. How do so many people manage to pile up so much debt in December?
1. They fail to budget.
If you are a business, you would have a business plan in place before you started a new venture. It would need to be compelling enough to convince the bank to lend you money. When it comes to holiday presents, we often think: “What would this person like?” or “What did I give them last year?” We buy gifts one at a time, often on impulse. I knew a financial planner who made a list of people who would be getting gifts, then wrote a dollar amount beside each name. She kept her spending within each target. 2.
2. We shop to impress.
Recently, an accounting professor shared the observation people go into debt because they spend money they don’t have, to buy thinks they can’t afford, to impress people they don’t like. The holiday corollary is we often overspend on presents because we want to impress the recipient of the gift. As a wine fan, some of the best bottles in our collection were not bought by us. They were gifts we received from others.
3. They don’t have a shopping plan.
It makes sense to build a master list of people who you plan to present with a gift this holiday season. Stick to giving one present, even if they give multiple packages. Buy it, wrap it, tag it and store it. It doesn’t matter if this is done earlier in they year. Check that person off your master list.
4. They wait until the last minute instead of shopping all year.
Many people start shopping on Black Friday, completing the process on Christmas Eve. Even if you work from a list, you are under enormous time pressure. You are not alone. The stores are crowded. You might do your shopping online, but this involves the issues of inventory availability and shipping time. This can be an issue if you send presents to friends and family in Europe. Deadlines to get things done adds to stress and drives the price up.
5. We behave like squirrels.
This is a problem where I can raise my hand. My wife and I find a great gift, perfect for a certain friend. We might buy it in March. We carefully put it away and forget where we put it. The gift leaves our minds completely. We arrive in December, determine we need a gift for someone and buy something totally different. We discover the gift we bought last much during the Spring in the new year. Your master list of presents needs to include were items are stored.
6. Everyone likes restaurants and bars.
The holidays are an ideal time to socialize. Friends suggest going out for drinks. You find you have unmet social obligations in December. You end up dining out far more often than you do during the rest of the year. You pick upscale places because “you are worth it.” The supersized bills arrive in January.
The holiday season needs to be approached with a budget, just like the rest of the year. You know certain months are more expensive because of scheduled tax payments. You anticipate this increase in spending. You either need to budget in for this increase or spread the expense across the rest of the year.
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