How to Bounce Back From Your Holiday Splurge
Did you spend too much this holiday season? You're far from alone. The National Retail Federation has estimated that the average consumer planned to spend about $805 on gifts this year. That's the highest this figure has been in the 14 years of the federation's survey.
You won't be the only person dreading those first credit card bills of the new year.
There is hope, though. You might have overspent this holiday season, but that doesn't mean that you can't recover from your financial splurge. Here are five steps you can take now to bounce back from your too-merry holiday shopping season:
1. Create a New Budget
A new year is a good time to create a new household budget. You won't be able to rein in your overspending ways if you don't have a firm grasp on how much money is coming and going each month. Fortunately, creating a budget does not have to be a challenge.
First, write down the revenue coming into your household every month. Then, write down the fixed expenses, such as your rent or mortgage, car payment, and/or student loan bills.
Finally, write down those monthly expenses that can vary. You might have to estimate some of these, but include everything from your utility bills to the money you spend on groceries to entertainment.
Armed with this information, you can make the sound financial decisions that you neglected during the holidays.
2. Start a Spending Book
No one likes to write down the cost of every cup of coffee they buy during the week. But by doing just this, you'll get a better idea of how much money you're spending on everyday items. A spending book is the perfect companion to a household budget.
A spending book can be as simple as a notebook. Write down everything you buy, every day, for at least a month. Then go back and total the numbers. You might be surprised at how much you spend on workday lunches, expensive coffees, or online movie rentals.
Once you better understand your spending habits, you can work to make changes. Maybe instead of getting takeout every day at work, you'll swap out three brown-bag lunches a week. Such small changes can go a long way toward repairing your damaged finances.
3. Ignore the Minimum
It's easy to make only the minimum required payment each month on your credit cards. But doing this is a huge financial mistake. It can take you years to pay off your debt, and you'll pay mountains of interest.
The better move, especially after your holiday shopping splurge, is to always pay more than the minimum. The more you pay, the more you'll reduce your principal balance. When you pay only the minimum, most of your money goes toward paying off interest.
4. Start Saving
If you have more cash toward the end of the year, you'll put less debt on your credit cards as you work through your holiday shopping list. It's important to start an emergency fund, a stash of money that you can tap to fund life's unexpected expenses. This will cover things like a broken water heater — or help you pay for gifts throughout the year.
You can start small, stashing $100 or so in a savings account every month. But if you can put more into an emergency fund, do it. If you can save $500 a month, that comes out to $6,000 a year. Think of how much better you'll feel by using those savings to buy holiday presents instead of your credit cards.
5. Forget the Game of Keeping Up
Resolve today to not let a sense of obligation force you to spend beyond your means. So your sister spends $100 on your holiday presents each year. That doesn't mean that you have to spend just as much on her. Buy what you can afford instead, and don't let guilt force you to overspend.
And if you can't afford it, don't rely on credit to finish your holiday shopping list. Your friends and family members should understand if you can't afford to spend as much this year. If you want, replace store-bought gifts with homemade treats or some other low-cost items.
Did you lose control of holiday spending? What will you do to recover?
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