We all know how easy and flexible credit purchases have become, almost too easy many would agree. Yet many people feel that their choices over spending are heavily influenced and beyond their control during the Christmas period. I have never met anyone who said “I spent just the right amount of money this Christmas”
So here are some tips to prepare for the Christmas period
- Make a list, check it a lot
This is one of the top items on any of these “prepare for Christmas” lists you will read. If you have a realistic list of things you need to buy and your budget, it will help you keep on track. This is a simple concept but how many people really do it properly? It will get you thinking about spending also.
- Pay off the full amount of your credit card in December
A lot of people throw caution to the wind and don’t pay off their full credit card in December, allowing a balance to stay. Credit cards bills are also pitched so that if you pay just what is suggested (minimum payment) then you will be behaviourally “anchored” to paying this minimum amount and not the full amount. Paying the full amount is the only way to avoid interest charges, late or other payment related fees. I HATE paying interest to a financial institution as I am sure you do. On principle I will go to lengths to avoid giving money to a bank or a credit institution if possible. If you can afford it do it. Otherwise paying interest or charges is like cutting money up and throwing it in the bin.
So, if you must face a bigger than usual bill in January at least it is not heaped on some or all the December one.
- Stop at the checkout
While you can get carried away with online purchases also, many online buyers over Christmas are held in check by “shopping cart regret”. This when the actual sum of your purchases is clear to you when you proceed to the checkout screen when you go to pay online. It will show full charges, postage and packing fees and what the bottom line is.
Looking at your shopping cart at checkout is another chance to ask, “do I really want this?” It is not to late to dump it at this point. This is also relevant at a physical checkout in a shop. Before you buy as yourself the question again “do I have to buy this?”
- Keep track online
Many of us can access our credit card statement at any time. We should make a point to keep track of spending and if appropriate PAY it off as you go along if it is affordable. There is no benefit of waiting for the bill if you don’t need to. Then there will be no major surprises when the bill comes at the end of January.
- Use a Debit card or cash only
This will keep the spending closer to home in that you only spend what you have. Also, people are usually better at analysing or keeping in touch with their debit card purchases online. Credit cards are one step removed hence tendency to overspend and worry later.
- Don’t buy in the first place
It is easier said than done and cries of “Scrooge” will sound but it is not too late to avoid certain pain by being mindful of spending over Christmas. Keep to essential and necessary spending. Fast forward 2 months further down the line to March. Does anyone really remember or care what was bought or bought for them during the Christmas frenzy? Bear this in mind when you take out the card. Can you invite friends over for dinner instead of going out? Can you pool taxis, take buses or generally save on nights out? Can you open a conversation with family or friends about presents and spending, adopt a Kris Kindle approach maybe?
Do something different this Christmas. You will have a better January and it will feel like you are ahead from the start of the new year. Just try it. It isn’t impossible.
- Does it fit in with your life plans?
When talking to clients I delve into their financial lives and if they fit with their life goals. They have life plans and passions that are uncovered in coaching sessions. It may be the urge to travel, take up photography, work with a charity or do a job they love. It might be to live debt free and be secure. It might be to stop spending on things they don’t need. It is personal to each. When truly asking yourself does spending this way get me ANY closer to these life plans, you get a different perspective on spending. If the answer is no to this question, then you have your answer.
- What kind of message are you sending?
Do you want to bring up children with a view that Christmas is just for more and more extravagant presents and keeping up with the neighbours, friends, whatever? What is the message you are trying to instil into them about the value of money, relationships and what is acceptable? Do you want them to carry forward the beliefs that a bigger spend equals a better Christmas? It maybe something you have not thought about. I still remember and am guided by the beliefs I have formed from childhood Christmas memories, so they stay with you.
- Beware of cognitive biases that cause you to spend
These would be subconscious urges that colour our behaviour. These include:
- Anchoring when it comes to sales prices or Black Friday/Cyber Monday type price cuts you will be influenced to buy if you have been “anchored” by a higher price and so see the lower “sale” one as more attractive.
- Believe it or not many are also poor at calculating percentage reductions and tend to compare non-similar goods in sales to form a buying decision.
- Scarcity is another tactic which is effective to motivate purchases. There is nothing better to whip up a buying frenzy than a perceived lack or shortage of the product. Think of “Sale Ends Tuesday!” or “when they are gone, they’re gone!” Ask yourself “is it really that bad if everything is sold out?”
- Loss Aversion gives people shopping the fear that they will miss out or be worse off if they don’t buy a product/service. This has similarities in investing biases, where it is shown that decisions are more coloured by the fear of loss than the desire for gain.
- Study how fees and charges are levied on your card
A friend warned me put this at the bottom of the list as it is, for many, an excruciating task! Nevertheless, it may come as no surprise to know that very little people know their daily or monthly interest rate, APR, cash balance fees or punitive charges for not paying on time or having a direct debit rejected due to lack of funds. Knowledge will empower you to keep more of your money and not give it to the grabbing hands of the Credit Card companies.
11.Don’t drink any alcohol……eh….only kidding!