Preparing For The Approaching Spending Season

If the past two COVID years have left you and your finances reeling, now is a good time to start preparing a financial plan for the approaching spending season, which has its unofficial kick-off toward the end of this month, with food shows paving the way for pre-holiday shopping sprees that mark the calendar sale events to which we've now become accustomed. But before getting too caught up in the coming carnival of spending, why not use the next few weeks to formulate a pre-holiday spending plan so that you don't find yourself despondent in January with bills and wondering how you will ever be able to get your finances back on track?

Make a financial plan

A financial plan is a document that details your true money position and what your goals are and how you plan on meeting these goals. You may say you already have a financial plan for your life, but a person can have many financial plans. The plan we're speaking of here is one for the approaching season. So your holiday financial plan would set out how much money is available to you, what it is you want to achieve during the holiday season and how your budget will assist you to accomplish it.

Your usual monthly budget, therefore, has to be reshaped. Holidays usually necessitate a refinement of budgets because we tend to spend more during these periods. Working with the same monthly budget is therefore an exercise in futility that often only just ends up derailing your long-term financial goals when you become bogged down in debt. So, for instance, your usual monthly spending budget is $20,000. But then along comes the Jamaica Observer's Take Style Out and the bargains are great; there are things on sale that you've wanted all year. Suddenly, your $20,000 spending budget is completely torpedoed and you end up spending, let's say, $50,000. And because you have not made allowances in your budget for that jump in spending, you instead put the additional $30,000-expense on your credit card. This is why you need to plan for additional expense as the last few months of the year approach.

Restructure your budget now

A CNBC report at the end of last year indicated that "more Americans got into the spirit this holiday, even if it meant spending more than they could afford". The assessment was made in a Lending Tree survey that noted that between buying presents, plane tickets and party supplies, 36 per cent of American consumers went into debt, owing an average US$1,249, with holiday borrowers putting these costs on their credit cards. It isn't hard to believe that a survey done here would yield similar results. As we've noted many times already in this space, and will continue to do so, credit card interest accrues, and if you're servicing your balance by paying the absolute minimum, your debt burden will only continue to grow. Think about how that will affect your ability to meet your more important long-term goals like owning your own house or even retiring when you're ready to do so.

If you're a person who gets caught up in holiday spending, admit it and act accordingly. Perhaps you should sit out this year's pre-holiday spending. But if you can't, then carefully weigh your options. If your usual budget sees you allocating 50% of your income to your needs, 30% to your wants and 20% to savings and/or paying down debt, you might want to, for the next couple of months, allocate 20% to wants and 30% to paying down debt. Or maybe you can allocate 10% to wants and 40% to clearing down debt, even better still. The aim is to bring your debt burden down as realistically as possible over the coming months.

Another option you might consider is earning extra spending money by taking on a short-term side hustle. This is a way to make extra cash outside of your regular nine-to-five job without using your credit card. If you've crunched the numbers and reallocating your budget can't quite move the needle on your debt, and you worry about incurring even more debt in the approaching months, is there something (legal, of course) you can do to supplement your current income? You might even find you want to make it a long-term strategy that can bring you even closer to your financial goals beyond the holidays.

Bottom line

Before figuring out where you want to be moneywise in January when the credit card bill comes, you need to take stock of where you are now. What are your money goals for next year, the next five years? How will credit card debt keep you away from reaching those goals? What is the true state of your current financial affairs now? How deeply indebted are you? Before throwing the plastic around at cash registers during the next few months, begin a thorough evaluation of your current financial state and your holiday expectations to see if you can really afford to.

Lamar Harris vice-president, wealth management, NCB Capital Markets

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