***How to Avoid the January Spending Hangover

written by Denise Chaney, ChFC, CLU, CASL

Have you ever experienced the January spending hangover? It is when you open the credit card bills in January and can’t figure out how you spent so much? Do you make that New Year’s resolution to spend less next year?

There are 12 million people who are still paying off last Christmas, so you are not alone. Does anyone remember the Christmas accounts at the local banks and credit unions? I clearly remember that my grandmother would take $10 dollars from each paycheck and put it into her Christmas account at the bank. Then, when Christmas rolled around, she had enough cash to buy everyone’s present and throw a wonderful Christmas dinner.

Credit cards are a lot more convenient, but also very costly.

It amazes me that people will line up for Black Friday to get the best deal and then turn-around and spend the money they saved on interest. For example, if we spend $1,000 and put it on a 12% credit card and only pay the minimum payment of $40.00, it would take us 6 years and 3 months to pay it off, for a total of $3,000 in payments. So, how can we make sure that we don’t overspend for Christmas and avoid the unwanted interest charges?

Unfortunately, the only way to make sure that we stay on budget for Christmas is to have a budget for Christmas. I know that budgets for most people rank right up there with dieting and dentist appointments, but it does not have to be hard. First, determine who you have to buy for and how much you want to spend on each. Include amounts for entertaining and decorations. Next, total your results and this is your Christmas budget. Take the money out in cash, buy a pre-paid VISA or put it in a separate account, but when the balance is zero, you are done. Better yet, open the Christmas account now for next year.

Segregating money for specific purposes is known as “bucket” budgeting and it is an effective budgeting strategy. You can set up different “bucket” accounts for specific goals, such as vacations and home improvements, as well as for recurring expenses such as car repairs, holiday spending, quarterly tax payments and insurance premiums. When all your savings are jumbled together in one account, it’s too easy to overspend–you’ll think you have enough for that vacation to Disney World only to find out you just spent the money you’d been saving for Christmas.

First, set up three bank accounts – two checking, one high-yield savings. Pay yourself first by sending money to the savings account automatically from your paycheck. Send the rest of your paycheck to checking account No. 1. (Talk to your payroll department to set up multiple direct deposits.) From this you’ll pay monthly fixed expenses, such as mortgage and utilities. Most of these expenses can be set up as automatic bill payments online.

With the remaining money, divide by four, and set up a weekly automatic transfer for that amount to checking account No. 2. This is for variable expenses like groceries, entertainment, gifts and eating out. Two rules: You can’t transfer more money over until the next week, and you can’t use credit cards.

Why it’ll work for you: “This gets you away from micromanaging,” says financial planner Eric Kies, who helped develop this system, called First Step Cash Management. In fact, it basically manages itself; all you have to do is watch your balance on the second checking account. The system creates “artificial scarcity,” forcing you to live on less and within hard boundaries.

If you still need help controlling your expenses, contact a Financial Planner who will help you set up your budgeting system and keep you accountable for using it.

Contact Denise at dchaney@newdawnfinancial.com
Maximizing business and personal cash flow through strategic debt management
It’s Your Money, Use It Wisely!

Tags: christmas budget, credit card bills, minimum payment, new year, paycheck