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my money coach

Are you going to have a

Christmas hangover this year?

by Tim St Vincent

What is a Christmas hangover you ask? Well, let’s start with what causes a Christmas hangover. Just like any other hangover, a Christmas hangover starts with excess consumption. In this case, instead of excessive alcohol consumption, a Christmas hangover starts with the excessive consumption of credit! Similar to how a regular hangover can leave you with a dull throbbing headache, a Christmas hangover can do the same thing. When that first credit card statement arrives in January showing how much you really spent for the holiday season, the dull ache starts behind your eyes and the beginnings of the Christmas hangover announces its presence!

How did you get here you ask yourself. How did you let things get so out of hand? The answer is fairly easy. Not only did you forget to budget (or to stick to it), you also made the mistake many of us make; we think of credit as money. It isn’t. Credit is potential debt just waiting to become real debt. The very second we use credit it becomes debt. Too many of us think of credit as an extension of our income. Again, it isn’t. Credit is credit, and with the flick of a wrist it is easily transformed into debt.

Have no fear though, unlike a regular hangover, I have a 100 per cent foolproof Christmas hangover cure!

When it comes to the holiday season and our gift giving habits, many of us think “No problem, I will just pay it off later.” Great, that is perfect. It is perfectly fine to use credit, so long as we have a plan to pay it off over a short period of time – ideally in full when the statement arrives. A statement like, “I will pay it off later,” isn’t a plan; unless you count it as a plan to lead you into debt. You need a budget. Given our topic, specifically, you need a Christmas budget – and that is the core of my Christmas hangover cure!

You need to set reasonable expectations with friends and family. A time comes when you simply can’t afford to buy gifts for everyone. Ddon’t worry. When you make that announcement, people won’t look down at you or think less of you. They will be relieved. They are going through the same financial stresses as you! Remember, not even Santa gives gifts to everyone! Just like Santa, make a list and figure out the cut-off point. You don’t have to have a “naughty & nice” list like Saint Nick, but you may want to have a cut-off point; usually an age. Anyone over a certain age doesn’t automatically get a gift. This lets you focus your spending dollars on the younger children. Maybe everyone over a certain age, say 18, goes into a Secret Santa pool, or you find some other way to share the spirit of the season with them.

Once you have narrowed down your list of gift recipients, you need to figure out how much you can afford to spend. Notice, I said, “afford to spend” and not just “spend.” Afford is an important word and one we sometimes forget about during the holiday season. It is just as important now as at any other time of the year – maybe even more so. So once you have that magical number figured out, you next have to figure out how to save for it. That is the easy part.

You have just created a goal – to save money for Christmas. Goals usually cost two things, money and time. You just figured out the money cost of your goal – the amount you can afford to spend for Christmas. What is the time cost of the goal? Well, one year because we are going to save over the course of the year to get ready for Christmas. I want you to think of the time part of your goal in terms of paydays. How many paydays do you have in a year? If you get paid every two weeks, the answer is 26. Divide the number of paydays for your goal into the dollar cost of your goal. This will tell you how to much to put aside every payday so that you can save enough for your Christmas expenses. Then open up a separate bank account and every payday automatically transfer your funds into this account. Keep doing this and voila! You will have enough money to pay for your Christmas gifts! Feel free to use your card (stay on budget!) because now you will have enough money to pay the bill in full when it arrives! “This is so easy,” you think. You have just one question: “Why didn’t I get started on this last year?” Good question, I say, very good question. My Christmas hangover cure is best taken as early in the year as possible, you want to give yourself as much time as possible to create your plan and to commit to it.

Good luck and best wishes. Do your best to avoid a Christmas hangover this, and every year.

Tim St Vincent is a retired CFP and is a Certified Educator in Personal Finance with the Credit Counselling Society, a non-profit organization. If you wish to contact the Society for further information, assistance or to attend a webinar, please call 1-888-527-8999 or visit www.nomoredebts.org or www.mymoneycoach.ca.

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