Monday, 14 January 2013

Post-Christmas cash crunch

So Christmas has passed and the holidays are over. Everyone's back to work and the kids are back to school. The new toys have been organized into the playroom, the boxes and gift bags and wrapping paper have been broken down and put out with the recycling and the tree is at the curb. The decorations have been taken down and wrapped in tissue and packed away until next year.

Unfortunately, now is when the Christmas bills are coming in.

You know, for those dozens and dozens of toys that were piled under the tree on Christmas morning? That great big bag of gifts you brought to your parents' place Christmas night for all your brothers and sisters and their kids? Those couple of last-minute things you picked up because your nephew loves Thomas and your niece would adore that princess doll and you couldn't decide between serving sets for your mom so you just bought both? That last-minute flurry of shopping you did because your eldest changed an item on his wish list and it messed with your carefully-planned balance of gifts between kids so you just threw your hands up and bought them all more? Those bills.

The first step to avoiding the post-Christmas bill nightmare, of course, is not to overspend. Right. Moving on. The next step is to plan carefully. Uh-huh, done. And blown. Probably the most critical is not to spend money you don't yet have - in other words, don't use credit. That money available in your credit card balance or on your line of credit isn't actually yours - you haven't earned it yet. Unless you have the cash to pay the bill sitting in your bank account or your wallet, you don't have the money for it.

This is a hard lesson to learn.

Credit can be such a temptation, so you have to stop viewing it as money available to spend. Once you get in that cycle of relying on credit to fill the gaps or get you ahead it seems almost impossible to dig yourself out, but it can be done. Put yourself on a tighter budget for all your other expenses and force yourself to stick to it. Throw all the rest of your disposable income at your debt until it's eliminated - you won't believe how much extra money you suddenly have available each month, or how much less stressed you'll feel without that worry hanging over your head.

So take those credit card bills and open them up. Draw in a deep breath and look at the terrifying figure at the bottom of the page. We've all been there. Now take out your pen and paper and figure out - realistically - your monthly budget. Mortgage, house insurance, household bills, car payments, car insurance, gas, groceries, clothes, spending money, bank fees, savings. Add it all up. Write your monthly income in a column next to it. If you're short, you need to reduce your variable expenses - groceries, clothing, odds and ends. Once you have a surplus at the end of the month, take that and throw it at your debt. If you have multiple credit cards, pay the minimum amount on all but the one with the highest interest rate and put the rest toward that one. Once it's paid off, put that whole amount toward the one with the next highest interest rate and so on until they are all paid off. You'll need to commit to keeping yourself within that tight budget for however long it takes to pay off all the debt - but once it's gone you'll have all that extra money to reincorporate into your monthly budget. You won't believe how rich you'll feel having all the money you earn available to you each month.

And next Christmas, plan ahead by setting aside a little bit each month to be used for gifts. It's a wonderful feeling when January arrives without any extra bills!

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