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A good friend of mine suggested that I write an article based on the premise of how to get back on track financially after the holidays. I responded by saying, “Wow! That’s a good idea. I never thought of that.” Dumbfounded by my response my friend said, “all of the financial writers are writing about Christmas blues and holiday hangovers. I can’t believe you never thought about writing on this subject.”
As I began to reflect on ideas to write about regarding how to help people bounce back financially after spending themselves BROKE during the holidays, I thought to myself, “I help people get back on track and get ahead financially EVERY DAY. Why would my advice be any different because it’s a HOLIDAY?”
I began to ask questions: How can millions upon millions of people go broke each and every year after the holidays? We all know that Christmas falls on the 25th of December every year, yet, millions of people act as if Christmas snuck up behind them, tapped them on the shoulder, and yelled—SURPRISE, I’m here! Do people think that time would stand still until they decided to be proactive and make provisions for the Christmas season? Do people convince themselves that some figment of their imagination called Santa Claus, lottery, casino, Publishers Clearing House winnings, knight in shining armor, or some happenchance windfall of money — better known as false hope — would show up and compensate them for their lack of planning and preparation for the holidays? It’s my opinion that being broke after Christmas is a microcosm of things yet to come. It’s small potatoes when you consider the overwhelming expenses that lie ahead — unexpected events, unexpected expenses, emergencies, tragedies, maintaining a home, college expenses, health care and retirement expenses. I’m going to be blunt! If you are broke after Christmas, you’re probably going to be broke after retirement. I said what I said!!
According to a survey conducted by International Communications Research of Media PA, the typical family spends anywhere from $810–$1,105 during Christmas. The survey revealed that most of the items purchased during Christmas were purchased with credit cards. Lastly, the survey revealed that only 45 percent of those using credit cards paid the balances off over the next six months. The remaining 55 percent of those using credit cards were still making payments after six months.
Surely, $810–$1,105 is a lot of money. However, is the amount so great that you cannot save and pay cash? Is the amount so great that even if you used credit cards during the holiday, you have a low probability of paying the balance off in full within 6 months? Is the amount so great that you’re singing Christmas Blues or that you’re having a holiday hangover?
If you answered yes to any of the aforementioned questions—I hate to be the bearer of bad news considering the time of the season. I feel that somebody has to tell you before it’s too late. For if you don’t get a handle on your finances today, you might as well get accustomed to singing the blues and you might as well get accustomed to financial hangovers because $810–$1,105 is small in comparison to the cost of an unexpected event or an unexpected expense. Money Magazine reports that 78 percent of all families will experience a major financial crisis with a price tag of approximately $10,000 within a 10-year period. This is why I recommend a fully funded emergency fund worth three to six months worth of living expenses.
$810–$1,105 is small in comparison to how much it’s going to cost you to put your children through college. You know the high cost of college and the pain associated with repaying student loans. This is why I recommend that you establish a college fund for your child. $810–$1,105 is small in comparison to how much it costs to purchase and maintain a home. This is why I recommend that you get your financial house in order first then seek homeownership. $810–$1,105 is small in comparison to the amount you’re going to need to maintain your lifestyle during retirement.
According to the U.S. Department of Health and Human Services, 96 percent of those 65 and older retire or die BROKE. Who knows what’s going to happen to social security? Most large companies no longer offer pension plans. Many companies are either reducing or pausing matching 401(k) contributions. More than 40 percent of Americans who are eligible to contribute to a retirement plan at work DON’T do so. Assuming that you do receive both pension and social security, in most cases the two together will only replace between 20-60 percent of your current income. This is why I recommend that you save for retirement.
The reason millions of people struggle after Christmas is the same reason millions of people are living hand-to-mouth, paycheck-to-paycheck, robbing Peter and Paul to pay Patrick; overspending, undersaving, poor money management and no financial game plan.
Have I not provided solutions in various columns? If you need me to personally to help you put together a plan, I’m ready to serve. The beginning of a new year is a perfect time to start!
(Damon Carr, Money Coach can be reached at 412-216-1013 or visit his website at www.damonmoneycoach.com)