Budgeting in a Spending Season

Thanksgiving is over and the giving season has just begun. Today's unofficial holiday, Black Friday, kicks off the holiday shopping season with a wide variety of retailers offering huge savings on high ticket items. Unlike the tamer Thanksgiving week traditions, such as the Macys Thanksgiving day parade or the traditional Thanksgiving feast, Black Friday is marked by epic lines at local stores and chaotic masses of shoppers, many of whom are willing to wake up before dawn for doorbuster deals and prime access to the soon to be out-of-stock sale items.

It's hard to remember anything when you're rolling out of bed at 5am, still drowsy from last night's turkey paired with a lack of shut-eye. But it's especially hard to remember your budget. Maybe that budget amnesia accounts for these poll results: according to the Washington Post, half of the respondents to a poll early last year said they would carry their holiday credit card debt into spring. And this was before the current economic slump. So how do you stop yourself from overspending this holiday season? Why not give yourself a few gifts before you start shopping for everyone else:

Gift 1: A Budget
I know, it's scary. When there are people to shop for, holidays parties to attend, even holiday parties to throw, you may not want to have your financial reality mapped out in front of you when you could have a piece of pie and a healthy slice of ignorance instead. But soon enough it will be January, the month of New Years resolutions and no more holiday splurge excuses. So why not get a head start and make a budget now? Include holiday gifts and get a better idea of how much you can spend this holiday season. You can use WISER's budget worksheet to get you started. For help on keeping track of your spending, check out WISER's "Keep Track of Your Spending" Fact Sheet.

Gift 2: A Low-Interest Credit Card
Look for low-rate and no annual fee credit cards. You can get a list of credit cards, interest rates and fees: send $5 to RAM Research’s CardTrak, P.O. Box 1916, Frederick, MD 21702, or for free on the Internet at http://www.ramresearch.com/. See also the http://www.cardtrack.com/ website .

Gift 3:A Free Credit Report
Get a better idea of your credit situation, for free! As of September 2005, all US Citizens are eligible for one free credit report from each credit agency per year. To receive your free annual credit report visit www.annualcreditreport.com or call 1-877-322-8228. This can help you improve your credit and set some long term financial goals.

Gift Trapped? [Washington Post]
Tips for Reining in Holiday Giving [Washington Post]

Priority #2: Dealing with Debt

In this, the second installment of When to spend, when to save..., WISER tackles the topic of debt. As a recent post pointed out, debt (especially the credit card variety) is a huge problem that most people would rather not discuss. But there are ways to deal with debt! Deciding on a strategy to pay off your different kinds of debt and get you out of the red as soon as possible should be one of your top priorities. Pay off credit card and student loan debt ASAP so that you can earn interest, not pay it!

Growth of credit card and student loan debt among young people has ballooned in recent years as tuition prices have gone up at the same time that credit cards were aggressively marketed to students and young adults. Two thirds of college students now graduate with loan debt – the average amount owed upon graduation is nearly $20,000.

What can you do? If you’ve already accrued substantial credit card and/or student loan debt in your early 20s, don’t freak out – but do get down to business figuring out a financial plan to pay off those debts.

• Start by using WISER’s resources to manage your spending (see Keep Track of Your Spending) and start a budget for yourself (see How Do I Start Saving).

• After you have a budget, devote as much of your monthly earnings as you can to paying off high interest credit card balances and private student loans first. Federal student loans generally have lower interest rates so you can afford to pay the minimum on them each month while you concentrate on eliminating high-interest sources of debt all together.

• When deciding how much money to devote to paying off debt each month, remember that compound interest means the sooner you pay it off, the less you’ll have to pay overall. One of the biggest mistakes you can make is only paying the minimum monthly charge on a credit card balance -- this will end up drawing out the debt for years and costing you many times the original charges in interest! For more information on managing credit card debt successfully see WISER’s Fact Sheets on Credit Card Debit for College Students and Credit Card Basics.

In this post, I emphasized spending wisely to pay off debt. In the final installment, we'll talk about how saving for retirement should figure into your financial priorities. As always, long-term financial security is the goal and WISER is here to help you decide when to spend and when to save...