Managing festive season finances
The figures are in: Aussies will spend $8.8 Billion on gifts this year, and more than half of what they spend will go on credit.
Avoid a debt hangover with two important strategies
Here in New South Wales, we’re the biggest spenders of all, with figures showing we’ll splash out $2.9 billion.
And then in January, when the fun is over, many people find themselves with a debt hangover that can be difficult to recover from.
How can you keep your spending under control during the festive season? There are two very simple ways:
1. Have a plan.
Whether you’re shopping for celebrations, going out for Christmas drinks, buying gifts, or going on holiday, the only way you can avoid overspending is to set yourself limits. While budgeting might seem ‘Bah Humbug’ it’s the only way you can realistically track your expenses.
2. Avoid impulse buys!
When you’re out shopping it’s very easy to pick up a few ‘extras’ while you’re in the mood – but this kind of un-planned spending is what gets people into financial trouble. Besides, if you really need it, won’t it be better to buy in the post-Christmas sales? And, on the subject of these – use sales wisely – to save money, not to overspend because you can see a few ‘bargains.’
It’s really important to steer clear of tempting ‘rent-to-buy’ or ‘buy now, pay later’ schemes that the big retailers have. Their own retail store credit cards often come with whopping interest rates too, which can be detrimental in the long term. Carefully check the fine print before you sign.
When you’re feeling relaxed and festive, it can be very easy to spend, whether it’s on entertaining, travel or holiday indulgences. Technology and the ability to simply ‘swipe a card’ or ‘pop in a pin’ means we often don’t have a real relationship with the amount of money we’re spending either.
For parents, the long school holidays can be costly too, with the added expense of activities for their children.
The credit trap
Credit is one of the most expensive types of debt, and because it is readily available, it can also be one of the most detrimental.
Let’s use for example figures from ASIC’s money smart website which says the average credit card debt post-Christmas is about $1,666 per person.
While most people aim to pay off their credit card in less than a few months, the reality is that many don’t.
If you have, as ASIC predicts, a $1,666 credit card debt post-Christmas, paying it off at $80 per month with an interest rate of 16% means that you’ll actually pay $1,914 (with interest over the term being $248) and it will take almost two years to clear the debt.
That is, provided the original 1,666 is all you owe, and that you don’t keep using the card, adding further to the debt.
Be mindful (but merry!)
Current estimates from the Australian Securities and Investment Commission show that as a nation we’re deep in credit. Australians owe about $32 billion on credit cards, an average of about $4,300 per card holder. The average card holder pays around $700 in interest a year, with an interest rate between 15 to 20 per cent.
Taking care of your finances this Christmas is as simple as being mindful of your spending. And remembering that credit can be a very convenient financial tool when it’s used wisely and managed carefully. But if not, it can mount very quickly, and lead to unnecessary financial drain, and significant long-term debt. If this happens, it can take some time to recover.
By all means have fun, but consider leaving the credit and debit cards at home this year. Take cash, and that way you can only spend what’s in your pocket.
MoneyLink Financial Planning Pty Ltd is an Australian Financial Services Licence Holder. No:.247360
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