Cleaning up Your Christmas Mess

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Spoiler alert – this is not an article about wrapping paper 

By Robert DeHollander, CFP®, AIF®, CRPC®
Managing Principal, DeHollander & Janse Financial Group

It’s that time of the year again. Christmas has come and gone and the new year is upon us. It’s a great time to reflect on the achievements of the past year and to plan for the new one. Unfortunately, many of us are receiving our January bank and credit card statements and wondering, “What in the world came over me last month? Who is Mr. Amazon, and how did he get my credit card?”

Did you overspend this holiday season? Don’t worry; you’re not alone. According to a July report by Lending Tree, 4 in 5 Americans are in debt. It’s common to overspend during the holidays, and it’s normal to feel a little guilty about it afterward. But don’t worry – here are three simple steps to help clean up the mess.

ASSESS: January is a great time to take a closer look at your finances, regroup, and track progress toward your financial goals. Everyone should have a personal financial plan.

Avoid the temptation to use any pot of money to make the holiday debt go away. Using retirement funds rarely makes sense, and it can torpedo long-term retirement goals.

Honestly assess your debt, and prepare a budget for paying it down as quickly as possible without dipping into emergency savings or borrowing money. Two of my favorite online resources are mint.com and readyforzero.com. Both have excellent tools for assessing your finances and creating a plan of attack.

ATTACK: After assessing your situation, it’s time to take action. In most cases, if you’ve overspent for a period of time, you’ll need to underspend for a while to free up cash to pay off the holiday excess. The accumulation of debt is essentially a cash-flow problem – you’ll need to either earn more or spend less. I know the latter option is not what people want to hear (it’s hard), but the debt won’t disappear on its own, and the sooner it is addressed, the better. Be realistic and develop a good budget to eliminate your holiday debt. In addition, here are three other ideas:

  • If you expect a tax refund, file your taxes now instead of waiting for the deadline. You can use this to pay off your holiday debt more quickly. Remember, if you’re getting a refund, that means you’re overpaying on your taxes during the year. A $2,400 refund represents $200 a month that could be in your pocket instead of Uncle Sam’s. Of course, don’t just spend it — apply it toward your debt.
  • Sell some stuff. If you have gift receipts for any Christmas items you don’t want, return them for cash. If not, consider using gift cards to cover expenses you would normally pay out of pocket. Also, see what you have for a garage sale, or to list on eBay and sell for quick cash to help reduce the holiday bills.
  • Consider paying your debt off using the snowball method. The snowball method pays down the smallest balance first and then each larger debt until it’s gone. This approach creates a positive psychological momentum. Of course, you’ll pay extra money toward the smallest debt while still making monthly minimums on the rest.

PLAN AHEAD: The final step to recovering from your holiday spending spree is to have a plan in place to prevent a repeat situation next year. Remember that your holiday debt is a symptom, not necessarily the problem.

For most of us, it’s critical to have a household budget. I’m amazed at how many people have no idea how much they spend. We work so hard for our money that it seems natural to create a plan to make some of our money work for us. Be realistic about where your money is going and how much you need for discretionary items. Then look for ways to carve out money for extra savings or debt repayment. Even small amounts – $25 a week or $100 a month – make a big difference over time.

In my experience, lack of attention (or better yet, lack of intentionality) is why most people overspend and save too little year after year. Plan ahead this year. Spend less than you earn and make this the last time you let holiday spending set you back. That’s a great gift to yourself for 2018!

Robert DeHollander is a managing partner and co-founder of the DeHollander & Janse Financial Group, located at 3515 Pelham Road, Suite 100, Greenville, 864-770-0220. Securities and advisory services offered through Commonwealth Financial Network®, member FINRA/SIPC, a Registered Investment Adviser.

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