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In the busy spend-spend madness of the holiday season, it’s easy to get so caught up in the joy of giving that your Christmas budget goes right out the window.
One minute, you’re cross-checking sales flyers to map out the best deals. Next thing you know, you’ve grabbed hold of the last Snow Glow Elsa within a 100-mile radius and are telling the lady at the other end to let it go already.
So what if it doesn’t fit the budget? You’ve got American Excess to help you out. Anyway, it’s just this once.
Until . . . dun dun dun! The next holiday gift “emergency” rears its ugly head.
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Sound familiar? If so, you’re not alone. According to the National Retail Federation (NRF), nearly 40% of shoppers expect to use their credit cards to buy Christmas gifts this year. And all this “stuff” could cost thousands more than you bargained for.
The Cost of Christmas Credit
The latest NRF survey shows that holiday shoppers plan to spend $800 on everything from presents and pies to tinsel and trees this Christmas. That’s all well and good when it’s a planned expense that you can cash flow. But all that holly-jolly can do a lot of damage when you put the whole Christmas shebang on your credit card.
Let’s say your credit card has an 18% interest rate and you pay the minimum payment each month. It would take you more than seven-and-a-half years to pay off your balance! By the time it’s all said and done, your $800 worth of “stuff” would cost you a whopping $1,400 thanks to interest. That’s an extra $600 tacked onto your holiday bill for just one year of shopping! You can imagine how quickly the dollar signs stack up if you fund every Christmas that way. Bah stinkin’ humbug, indeed!
A Better Way to Spend $600
Can we all agree that going into debt is the least fun way to spend your hard-earned cash? So let’s dream a little.
What could you do with $600 if it’s not going to credit card interest? You could use it to turbo-charge your vacation fund every year. Picture a relaxing week with your family on the beach—or maxing out on magic at Disney World—if you need a boost of motivation.
Here’s another idea: Pay your home off early with that $600! If you divide $600 by 12 months, that’s $50. Why not apply that extra $50 to your mortgage payment each month? You could shave more than $14,000 and three-and-a-half years off your mortgage for a $150,000 home with a 30-year loan.
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And, of course, there’s always your nest egg. (Overachievers, take note!) Throw that cash into a Roth IRA and watch it grow to a whole new level. Consider the numbers: if you invested $600 a year in good growth stock mutual funds, you could pump an extra $40,000–50,000 into your retirement savings after 20 years.
Create a Brighter Christmas Future
Let’s be crystal clear about this: We’re not saying you can’t buy Christmas gifts for the ones you love. Giving is the most fun you’ll have with money this season!
But if you can’t afford to buy Grandma a diamond bracelet this year, don’t. She’s had harder knocks in life (remember that whole reindeer incident?) and will still love you if all you can afford to give is your best batch of homemade cookies. And wouldn’t she rather see you build money-smart habits than a future mired in debt anyway?
If you don’t want to pinch Christmas pennies in 2015, go ahead and make a plan to cash flow next year’s holiday spending. Let’s say you’ve budgeted $800 for next Christmas. Divide $800 by 10, then set $80 aside each month from January through October. Voila! No need to swipe plastic when November rolls around.
Ask a financial advisor to show you how to build a future that you and Grandma can both be proud of. Look for an experienced advisor who’s seen the market through ups and downs and knows which mutual funds outshine the rest. A true pro will take time to explain all of your options in plain English so you can make the decision that’s right for you.
Need help getting started? We can recommend a financial advisor who’s earned Dave’s seal of trust in your area.