How To Have a Happy, Debt-Free Holiday

How To Have a Happy, Debt-Free Holiday

Thanksgiving is just days away and will be kicking off the holiday season with late night door busters and Black Friday super sales.  We all know it’s way too easy to get caught up in the mania of holiday shopping.  With seemingly infinite financial demands already weighing on you, it’s tempting to get suckered in by the big stickers advertising clearance and percentage-off sales - pressuring you into spending on “unbeatable deals” before time runs out. 

Making financial decisions under pressure, however, rarely proves to be a sound fiscal strategy.  If budget is a concern - and let’s be honest, it’s always a concern - take some time now to map out a strategy for your holiday spending that won’t leave you with a painful debt hangover come New Years Day.

Identify Your Spending Limits.  Hopefully you’ve already set aside some savings for your holiday travels, parties, and gifts.  But if not, make an honest assessment of what you can afford to spend.  By setting limits on your spending ahead of time, you’re less likely to push the boundaries of your budget when you come across something impossibly perfect or tempting in-store or online.  If you know that you have a tendency to overspend, consider using either cash, spending tracking software or apps to strictly enforce your self-imposed limits.

Learn to Say No.  Allow yourself to turn down invitations and solicitations that fall outside of your holiday spending plan.  Learning to say no to others is an important part of saying yes to yourself and your personal and financial priorities.

Prioritize.  Speaking of priorities, make a list of everything you’d like to fund this holiday season - from decorations to stocking stuffers - then prioritize that list from most important to least.  You may find that your previously designated spending limits don’t allow you to afford everything on your wish list, but with your wishes prioritized, you can easily identify which items to forgo.  Giving up the Christmas wreath to afford a train ticket to spend the holiday with family isn’t such a bad trade off, after all.

Cash In on Deals.  While holiday deals shouldn’t pressure you into overspending, it’s always a good practice to keep an eye out for good buys.  In addition to researching specials and promo codes, make the most of cash back, price comparison tools, and other savvy shopping strategies.  You don’t have to wait in line in the freezing cold at midnight to enjoy the perks of mobile and online apps like RetailMeNot and PriceGrabber.

Plan For Next Year.  Holiday planning in November doesn’t quite qualify as “waiting until the last minute”, but the more advanced preparation, the better for your budget.  For example, if you get your holiday decorations right after the peak season ends in early January, you can enjoy the benefits of clearance pricing.  And if you start setting aside a small percentage of each paycheck in January your “giving” or “holiday” account should be more than large enough to fund all of your holiday spending priorities come November of next year.

Stay Grounded in What Matters.  Above all, remember to stay grounded in what the holidays are all about - love, friendship, family, etc.  Who you spend time with and the memories you share in together with will ultimately matter much more than how much you spend.

What’s Your Savings Approach?

What’s Your Savings Approach?

How do you approach your savings?

When you were young, you may have stashed your precious pennies in a piggy bank, saving them up until you could dump the entirety of your coin collection onto the floor, count it up, and daydream about what that total could afford you.

As you got older, your savings approach probably evolved from hoarding found pennies to collecting dollars from allowances and odd jobs, all in the hopes of saving up enough to buy the latest hit CD release or ticket to the movies.

But what happened when you got to college?  If, like many, you lived by the “I’m a broke college student mantra”, perhaps you stopped counting those dollars and cents altogether and resigned yourself to the demands on your money in the present being far too great to plan for future savings goals.

Unfortunately, that common collegiate “broke” mentality has a tendency to linger on even after the first paychecks of post-grad, work life start trickling in.  After all, life is expensive when you have to pay for it on your own.  

And so, life goes on while the brakes on savings hold, often locked in that down position long past due - leaving many smart, young professionals financially vulnerable and unprepared.

The early childhood experience of piggy bank savings teaches an important lesson that too often gets forgotten during the flux of new financial demands in early adulthood - savings is a necessary tool for reaching future goals.  Just as saving up five pennies once paid for a piece of gum from the candy shop, small contributions from each paycheck can pay off in years of retirement. 

So if procrastination has been your primary approach to savings in the past, consider what those savings really mean…

A Safety Buffer.  Without accessible, liquid savings you leave yourself vulnerable to high interest credit card debt should any unexpected emergencies or necessary unforeseen expenses arise.  Savings serve as a kind of financial safety buffer.

Fulfilling Short-Term Goals.  Whether it’s a down payment on a home, a wedding, a vacation, or a new computer - savings are the ultimate tool for funding goals.  Defaulting to credit cards and spending your entire life in a cycle of paying back your past is setting yourself up for the constant anxiety and financial burden of high interest debt.

Retirement and Long-Term Freedom.  If you have any hope of retiring some day without living in a cloud of financial anxiety, you’ll need to put some long-term savings strategies in place.

To make sure you achieve all three of these savings realities, you may need to reassess your current approach.  Make savings a priority every month rather than a backburner, “I’ll get to it someday” goal.

Use our PASS acronym to help you remember your savings strategy and reprioritize your savings plan!

  

Pay Yourself First.  If you figure you’ll save whatever’s left over at the end of each month, you’ll probably find that you run out of money before making a savings contribution.  Start making savings as non-negotiable as your housing payments by making a deposit into your savings and/or retirement accounts on the first of every month.

Automate.  If setting aside money on your own proves to be too difficult, schedule an automatic transfer from each paycheck into a savings account.  The more automatic you can make your savings process, the more likely you are to establish the savings habit without self-sabotaging by preemptively spending your savings contributions.

Segregate.  Have separate savings and/or investment accounts for each savings goal to more easily track your progress.  For investment accounts, it is important that you tailor the investment approach to the purpose of the funds in each account, so having unique accounts makes this process much easier and more effective. 

Set Specific Goals.  The more clarity you can bring to why you need to save - whether it’s to buy a home or to pay for your children’s college education - the more motivated you’ll be to achieve your savings goals. 

What's the Deal With Credit?

What’s the Deal With Credit?

When you think “credit” what comes to mind? The guys from freecreditreport.com jamming out in their mom’s basement?  The cartoon old lady from Credit Karma?  Commercials for credit are almost as ubiquitous as the Geico gecko and Flo from Progressive hawking car insurance policies.  Why so prevalent? Because credit is that important.

Credit not only determines the financing rate you get on the biggest purchases of your life - like your home - credit is also used as the definitive measure of financial dependability to determine your insurance rates, rental opportunities, and in some cases, employment prospects.

But what exactly is your credit score and what does that score mean for your financial future? To put it simply, your credit is a measure of how well you borrow money.  It has nothing to do with your income and everything to do with how well you pay your bills and debts.

The credit score is calculated from information reported to the major credit bureaus, with each piece of your financial history weighing differently on the final calculation.

The Credit Breakdown

35% Payment History.  By far the most important part of your credit score is a history of on-time bill payments - credit cards, loans, even utility payments factor in.  Just a single missed or late payment can result in a significant score drop.

30% Credit Utilization.  You never want to use too much of your available credit at any one time.  Even if your credit card limit is $1,000, experts recommend keeping your utilization well below 30% - in this case, $300.

15% Length of Credit History.  While you can take full responsibility for on-time bill payments and proper credit utilization, there’s not much you can do to improve your length of credit history - other than wait it out.  What you can do is make sure to keep older credit accounts open and in good standing.  As long as there’s no pricey annual fee, it’s best practice to keep your oldest credit card open, as closing it could wipe out valuable history.

10% New Credit.  It doesn’t reflect well on your credit when you open up a slew of new credit lines in quick succession.   Nothing says, “I’m desperate to borrow more money” quite like an onslaught of new credit and loan applications.  So be wary before automatically saying yes to that retail card that’ll give you 15% off your entire purchase.  It’s fine to open new accounts, just be mindful of the timing.  You don’t want an impulse decision at checkout to cause your credit to suffer.

10% Types of Credit Used.  Mix it up!  Diversify your credit with a mix of revolving (ex. credit cards), installment (ex. mortgage and student loans), and open credit (ex. utilities and cellphone).

Once all of the factors are weighed, you’ll be left with a number between 350 and 850.

750-850 - Excellent.

660-749 - Good.

620-659 - Fair.

350-619 - Poor.

If you have no history of borrowing money however, your score will probably be a big fat zero, making it difficult for you to be approved for any kind of financing.

Why does all of this matter anyway? 

A high credit score signifies a good history of borrowing, and to lenders that translates to less risk.  That kind of dependability means access to the lowest interest rates and the best financing promotions, which can save you thousands over the life of a long-term loan like a mortgage.

Good credit is the ultimate savings tool when it comes to your biggest financial decisions.  Set yourself up for a good deal by building your credit history now, making regular payments on all of your loans, and keeping your score in check for the future.