Personal Finance Advice

You might be the type of person who usually does a fantastic job of keeping your personal finances in order.  You write out a budget consistently and actually follow it, rarely deviating from the spending limits that you set for yourself.  You have an emergency fund in place, you pay off your credit card balances every month (or don’t use them at all), and you are never late paying the electric bill.  In other words, your finances are squared away and you don’t throw money around like it’s going out of fashion.

Then comes holiday spending.

What is it about holiday spending that sweeps some otherwise-sensible people away and makes them spend money with reckless abandon? Perhaps it is the bright lights and cheerful music pumping through the mall sound system, but for many people this is the only time of the year that they whip out their credit cards for purchases without giving much thought to the total bill for all the shopping at the end of the season.  They figure that everyone else is splurging, so this is simply what consumers do during the holiday season.

Stop.  Take a breath.  Put your credit cards back in your wallet.

It is indeed a magical time of year that inspires most people to venture into stores they might not usually go into to make purchases they might not usually make.  Even some people who do not necessarily celebrate the holiday of Christmas still indulge in the rush of consumerism that accompanies the months of November and December…sometimes even October or earlier for people who like to get a head start on the shopping.

“Black Friday” is the day after Thanksgiving and is also traditionally the busiest shopping day of the year.  Stores offer enticing sales and consumers respond with enthusiastic spending.  It’s called “Black Friday” because it’s supposed to be the first time in the fiscal year when merchants see their balance sheets go into the black instead of the red.  Profit outweighs the cost of operating the stores when things are in the black.

For some people it’s a tradition to get up really early the day after Thanksgiving and brave the crowds of people who are also out looking for a deal.  It is possible to find some fantastic deals in the early morning hours of Black Friday, but you should expect to have to deal with some enthusiastic (and sometimes grumpy) shoppers.

If you plan on going out and shopping on this day you need to remember to set a budget.  Holiday shopping can spiral into a huge lump of debt that sits on your credit cards for month, compounding interest and becoming harder and harder to pay off.  If possible, pay with cash or with your debit card.  You’ll be less likely to overextend yourself if you know you’re draining your checking account instead of simply building up a frightening balance on your credit card.

Also remember to not buy just to buy.  Enter into a store with ideas in your mind of what you need to buy and try not to stray from your list too much.  Yes, you can find great deals during this shopping frenzy, but it’s not a good deal when you buy things you don’t need.  75% off from junk is still junk, after all.

Happy shopping! 

What is a spending log? It’s a piece of paper or online document that you use to notate every time you make a purchase or pay a bill.  In other words, every time you use some of your money, you write it down or input it into your computer.  It’s obviously a tedious process - especially if you’re used to using your credit or debit card for most of your purchases and make quite a few purchases throughout the day - but if you really have no idea where all your money is going then a spending log can be a really useful tool.

If you’ve composed a budget that seems to be feasible, but you just don’t seem to have any money left over to stretch out for the entire pay period, then it may be time to start up a spending log.  Keep in mind that very few people keep a spending log as a habit.  This is a tool that can be incredibly useful when you’re trying to get your personal finances under control, but you needn’t feel as though this needs to be a practice that you will need to stick with for the rest of your life.  The reason why this is important to realize is simple: Keeping a spending log can be time-consuming and annoying.  It’s important to always keep in mind that the task is worth it (and something that you won’t have to do for a very long time).

Here is how to keep a spending log:

Decide how you will keep track.  You might want to use software on your computer to track your spending or instead just use a notebook and pencil.  Use whatever method is easiest for you.  It’s important to choose a method that you’ll actually use.  If you rarely log into a computer outside of the confines of work then you probably don’t want to choose this method.  If you know that you’ll forget to bring your notebook with you everywhere you go, don’t choose this method.  Figure out what will work best with your daily activities.

Figure out your method.  Some people prefer to keep a running tally of their spending as though the log is one large math problem.  For example, the amount of your paycheck is at the top, then every time you spend money is subtracted.  Other people prefer to itemize their spending logs so that every purchase is placed into a specific category, such as milk going into a category for “Groceries” or a business lunch going under a category for “Work Expenses.”  Don’t choose a highly itemized method if you know that it will overwhelm you resulting in an incomplete spending log by the end of the pay period.

Track every expense.  Every time you use money - for groceries, for gas, to buy a pack of gum - notate it into your spending log.  The trick is to be as accurate as possible because the eventual advantage is to get a full picture of where your money goes.  If you keep an accurate spending log then it should become obvious where your money is going, and it may actually reveal that you spend far more money on things you don’t really need.

Examine your spending behavior.  Spending logs are relatively useless if you don’t use them to figure out where your money is going.  Your log should open your eyes as to where your money is getting wasted on things you don’t really need, and this realization should prompt you to change your spending habits.  You might choose to keep a log for a few more pay periods to keep track of how the small changes you make in your spending can make a huge difference.

A spending log can definitively answer the question, “Where in the world does all my money go?”

You get a phone call from someone who claims to be from your utility company.  He wants you to sign up for a new payment plan that is supposed to potentially save you money in the long run, but you don’t quite understand the details.  He explains it to you a few different ways but you still aren’t quite sure how the program works.  He keeps assuring you that you will save money by enrolling in the program and he’s urging you to make a decision because he has other phone calls to make before his shift is over. 

It’s not like he’s trying to swindle you; he’s a real employee with a place you do business with, so it’s not that you have to be apprehensive about giving him the okay to make changes to your account.  The problem is that he’s trying to get you to sign up for something that you don’t entirely understand and he’s not explaining it sufficiently for you to decide if it’s a good decision for your money or not.  What do you do?

Don’t let anyone pressure you into signing up for something you don’t fully understand.  Maybe your credit card company wants you to sign up for a credit protection program that sounds like a good idea but you don’t know if it really is worth your money.  If you can’t seem to figure out the full details of the program, don’t sign up for it.

In fact, unless you are absolutely sure that the person calling you is a true representative of the company you do business with, you shouldn’t sign up for anything over the phone.

Here is what you should do if you aren’t entirely sure what you’re signing up for:

1.  Tell the representative that you have a policy of not signing up for new programs over the phone.  If you sound as if you don’t make exceptions to this rule, the representative will probably stop with the hard sell.

2.  Ask the representative to send you information through the mail.  This way you can read through the program details at your leisure and make an informed decision.

3.  If the representative won’t take no for an answer then hang up.

This not only is a solid plan when dealing with representatives from companies you do business with, but also works for unsolicited phone calls, such as charities you have never heard of.   

Don’t make hasty decisions regarding your money just because you want to get off the phone.