Soon people will be making promises to themselves to do something to improve their financial situations.
But many won’t make such a pledge until after the holiday season. It won’t happen until after they’ve spent more than they can afford buying gifts. They won’t be ready for a change until after they’ve added more debt to their credit cards trying to make Christmas magical through consumption.
I’m probably too late for a lot folks with just 13 days to go before Christmas, but what if you can still stop this financial madness?
What I’m suggesting is radical. It may result in friends and family giving you the stink eye. Your children may be disappointed. Yet, here you are again at this point in the year, broke and still splurging on gifts.
Don’t wait for the New Year to resolve to do better. Do it now! And how do you know that you should have a gift-free Christmas. Here’s how. If you answer no to any one of the following questions you should not be buying any presents.
— Do you have an emergency fund? Experts recommend you save at least three to six months worth of living expenses. Let’s say with rent, utilities, food, cable, auto loan, debt payments, etc. your monthly expenses come to about $3,000 a month. In this case, you should aim to save a minimum of $9,000 (three months of living expenses) up to $18,000 (six months).
Okay, don’t faint. I get that the financial practicality of saving that much money is daunting — if not impossible. It may be such a big number that you rationalize that you might as well buy gifts because you’ll never have that much extra in your budget to put in an emergency fund.
But you could get to $1,000 or maybe $2,000 if you started with what you had planned to spend during the holidays?
— Are you saving anything or enough toward retirement? There is no question many people are far behind in their retirement savings.
A report by GoBankingRates.com found that 42 percent of Americans have less than $10,000 saved for retirement and 14 percent of survey respondents said they had nothing saved.
— Got children? Are you saving anything or enough to eliminate or greatly reduce the need to take out student loans? I have a question for you. What will matter most? That your children got a lot toys or clothes they’ve long forgotten by the time they graduate from college or that their degree didn’t come with a lot of debt?
I recently challenged a couple on this very issue. I proposed that they not spend anything for Christmas so that they could boost the savings for their daughter’s college education. The mother just stared at me as if I had two heads. And yes, she gave me the stink eye.
But to the couple’s credit they went home and discussed with their children whether it was okay for them to pull back on holiday spending to help with college savings. In one child’s case they could use the money to help down some of her student loans. And you know what? Their children were perfectly fine with the decision. They understood what they were giving up in exchange for what they would be gaining – financial freedom.
— Are you paying off your credit cards in full every month? A survey by Swagbucks found that 63 percent of Americans go into debt during the holidays.
If you have outstanding credit card balances that you are carrying forward every month, you absolutely should not be spending anything for the holidays. You definitely shouldn’t be putting any additional charges on the card or cards — even if your card has a zero percent interest rate.
The average median annual percentage rate (APR) for retail cards is 25.64 percent, according to CreditCards.com. The rate for general-purpose cards is 20.82 percent.
When it comes to reward cards, only 41 percent of cardholders pay their bills in full every month, according another survey by CreditCards.com
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