Holiday Financial Hangover -- Plan Now to Avoid Them!

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Many shoppers will awake from the holidays with the abrupt reality created by their holiday shopping sprees: the bills. How can you avoid creating a Holiday Financial Hangover? Follow this four-point strategy from CERTIFIED FINANCIAL PLANNER(tm) professional Steve Blankenship and keep your spending in check.

‘Tis the season for many Americans to hit the shopping malls and retail stores preparing for the onslaught of holiday gift giving that marks the season. Unfortunately, many shoppers will awake from the holidays with the abrupt reality created by their holiday shopping sprees: the bills. According to Consumer Credit Counseling Service, the average American household carries a balance of $8,400 in credit card debt and well over a million credit card holders are expected to file bankruptcy in 2005. The holiday season is the time when many people’s financial situation goes from bad to worse. Credit card balances tend to soar at this time of the year!

Why Do So Many Get Into Financial Trouble During the Holidays?

The holidays evoke a number of emotions ranging from anxiety and depression to excitement and anticipation. Marketing firms are well aware of this phenomenon. Studies have shown that approximately 80% of consumers make their purchasing decisions based on emotion while the minority make their decisions based on logic. The emotional highs and lows of the season coupled with hungry retail and marketing industries can be a recipe for financial difficulty for many people as stores line their shelves with impulse purchase items for that special someone.

Make a List and Check it More Than Twice

So how can you avoid creating a Holiday Financial Hangover? The first step is to take a proactive approach. Steven Covey hit the nail on the head when he said the first habit necessary for success is to be proactive. To this end, take a few minutes to jot down each person to whom you plan to give a gift this holiday season. Don’t forget to add in those gag gifts for your office party. If a list is important enough for Santa then it’s important enough for you!

Next, develop a spending limit for each person on the list. More than likely, the value of the gift you give your niece or nephew will be greater than the postman’s. Still, determine a price limit for each. The final step is simple yet critical to your success. Stick to your limit! Fudging on the numbers will only get you into trouble and defeat the purpose of making a list in the first place. No matter how much your grandson would love the latest and greatest Xbox game, keep in mind that you will have to climb as high financially as the hole you dig for yourself.

Beware of This Sly Front End Tactic

One clever tactic that will lure in thousands of shoppers this holiday season is the old “if you sign up for our store’s credit card you can take an extra 10% off of your purchase today.” Keep in mind that the percentage-off on the front end will be more than offset by the finance charges if you carry a balance. Sure, you intend to pay off the balance; but you would not be the first holiday shopper to suddenly realize that you’re unable to pay it off entirely before the free finance period ends. What’s more, even if you pay off your balance every month to avoid a finance charge, the mere act of opening a new credit account could negatively impact your credit score. And credit scores can have a direct impact on the cost of a variety of goods and services including your insurance and, in some parts of the country, even the rate that you pay for electricity! As tempting as it may seem to save money on the front end of the purchase, remember that you won’t get ahead financially by obtaining more credit cards.

Cash is King

If you really want to take control of your spending this year, forget credit cards altogether. While credit cards may be as synonymous with holiday shopping as eggnog is with parties, you should give cash another chance. Studies have shown that consumers spend significantly more when they use credit cards than if they had used cash. That is because cash if finite; it is easier to see your wallet’s cash supply is dwindling than it is to see credit card bills mounting. One study showed a typical credit card purchase was 112% greater than had the shopper used cash. Many consumers have embraced the electronic age and no longer carry large sums of cash; for these shoppers a debit card may be a suitable alternative.

Where Do You Turn?

If you do find yourself in financial difficulty as a result of the holidays it is important to know where to turn. A number of credit counseling services advertise their services and purport to be non-profit agencies; however, a good number of these agencies are actually owned by the credit card companies themselves! It is best to stay with the tried-and-true for this type of assistance. Good resources include http://www.daveramsey.com (arch enemy of the credit card companies and consumer advocate) and the Consumer Credit Counseling Service in your area at http://www.nfcc.org.

Let’s Be Careful Out There

So hit the shopping centers and the super centers, but go prepared. Shop responsibly and avoid that awful Holiday Financial Hangover.

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About Heritage Financial Planning

Steve Blankenship is principal of Heritage Financial Planning, an independent financial planning firm located in Grapevine, Texas. A Certified Financial Planner™ professional, Steve was recently featured on the cover of Financial Planning magazine and profiled in the related article. He is a Member of The Garrett Planning Network, Inc., the nation’s largest organization of hourly as-needed financial planners. He is also a member of the Financial Planning Association, the largest organization of professionals dedicated to championing the financial planning process. He can be reached at (817) 310-5171. Or email him at Steve@HeritageFinancialPlanning.com. For more information, visit http://www.HeritageFinancialPlanning.com.

About The Garrett Planning Network, Inc.

The Garrett Planning Network, Inc. (GPN) is a nationwide network of professional, fee-only financial advisors. GPN members are dedicated to providing competent, objective financial advice to people from all walks of life, on an hourly as-needed basis. There are no account minimums or long-term contracts required. GPN members focus on working with two often overlooked and underserved markets: (1) middle-income individuals and families, and (2) do-it-yourselfers who need or want occasional professional advice or a second opinion. Many people who have previously been turned away by traditional asset management or financial planning firms with high minimums will be pleased to know that, through The Garrett Planning Network, they now have access to the same quality financial planning and advice once available only to the wealthy. The network has been profiled hundreds of times in major publications, on the Web, radio and television. For two consecutive years, Investment Advisor magazine has named GPN founder, Sheryl Garrett, “one of the top 25 most influential people in the financial planning industry.” For more information, visit http://www.GarrettPlanningNetwork.com.

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