The fog of celebrations has lifted. The New Year has arrived in all its glory. This is a time for hope, new chances, and renewed optimism.
And soon the holiday bills will start to roll in.
Did you know that Americans now spend more than $1 trillion during the holidays?
If you’re one of those generous gift-bearers who puts a lot of your purchases on credit cards, you may be part of this statistic too: The average American has a credit card balance of close to $6, 200, according to Experian.
That’s a debt that can last through most of the 2020’s if you make only minimum payments. It’s certainly not the happiest way to start a new year—a new decade in fact—that’s already loaded with uncertainties.
None of us to want to disappoint our children, family or friends. At holiday time we think more about the joy we are spreading with our spending rather than the long-term impact it’s going to have on our finances.
But if your spending is out of hand, you’ll suffer in the longer term, and so will those who depend on you.
The good news is that you can reframe and readjust your approach to spending, and reclaim financial sanity. January is an excellent time to start on that path. Here are eight positive actions that will get you on your way:
1. Create a positive and powerful statement for the outcome you must achieve. For example, “I am in control of my financial decisions and live my values” or “ I can joyfully live within my ability to save and spend sensibly” or “I do not allow guilt, pride or ego to interfere with my decision to live within my means.”
Write it down and read it aloud as often as possible–at least four to five times per day.
2. Take stock of your current situation. It might be a boring or painful exercise, but you simply have to understand what is coming in the door, what fixed costs are going out, and where you must apply your financial resources, along with your current debt situation and the cost of credit.
Print out or draw yourself a blank calendar. Record on the calendar when you get paid, and how much is being deposited. Now record your rent or mortgage payment and when it is due, along with your other costs, such as utilities, car payments, transit cards, credit card bills, insurance, cell phone, etc.
That’s your financial life mapped out in front of you. Keep a running total of the numbers on the side (the ins and outs). You’ll get a quick picture of your monthly cash flow.
3. Review your net worth. Add up your assets (savings, investments, retirement plans, real estate, etc.), then subtract your debts (credit cards, mortgages, student loans, etc.).
If the number is positive, create a plan to increase it by a reasonable but challenging amount. If your net worth is negative—meaning your debts are greater than your assets—it’s time to get serious about turning that around.
If you’re not sure how to climb out of debt, ask for help. There are many qualified cash flow coaches or financial planners who, for fees charged on an hourly basis, can help you get on track. It’s not a crime to ask for help in areas where you lack objectivity, knowledge or experience.
4. If your proverbial train is off the track, you can beat yourself up and feel miserable and perhaps engage in retail therapy to make you feel better. But the greatest act of self-love is to forgive yourself. Get off your own back and begin to build better habits that can help you move in the right direction.
5. Review what you spent this holiday season and decide if it’s “right-sized” or needs some trimming. Commit to a number for next year and create a separate holiday savings account in which you deposit a specific amount from each paycheck.
You can do the same for other categories, like vacations, car purchases, children’s birthdays. Electronic banking makes it simple; you can also use auto pay to fund these accounts.
6. Get off the credit card treadmill. Yes, it means you’ll actually have to have the money in hand before you spend. Try it and see whether it makes a difference in your spending, especially the frivolous or low value items that add up before you know what’s hit you.
Yes, I am sure you’re going to tell me about all the points and rewards you’ll miss out on. Credit card companies count on that feeling that you’re getting something for nothing every time you whip their card out.
I’m going to answer right back: look at the interest you’re not paying and the amount you’re savings for things you really care about.
7. Review and explore potential threats against your financial security. I mean big threats, such as job loss. If that were to happen, how long could you go without a paycheck? That calculation will help you understand how big an emergency fund you need.
What about things like car repair or appliance failures? When might these essentials need replacement or major repair?
What about deductibles on insurance? Your medical, car, homeowners or renters, disability, umbrella insurance all have deductibles. These are threats against your financial security if you don’t have the funds in reserve.
8. If you have a spouse or life partner, are you both on the same page? If not, it could spell disaster if you’re moving in different financial directions. Discuss your joint values and work out a plan for making them happen. Leave blame, shame and finger-pointing behind you.
Here’s wishing you and your loved ones a happy, health and financially satisfying New Year.