DebtHammer Newsletter #11: The Tools You Need to Become Debt-Free

Where’s your money really going this holiday season?

It’s that time of year again. The winter holidays are just around the corner, and the holiday shopping season is about to hit its peak. With two of the biggest shopping days – Black Friday and Cyber Monday – coming up this month, people are gearing up to buy gifts for their loved ones.

And not just gifts, but food, decorations, parties, and more. Americans spend hundreds or thousands of dollars every holiday season preparing for Thanksgiving, Hanukkah, Christmas, and Kwanzaa. After all, they want the best for their families and friends.

The holiday season is filled with warmth and joy for many, but it’s also an exceedingly expensive time of year. A lot of people end up spending far more than they can afford, something not helped by high inflation or unemployment. Without a clear understanding of where your money is going, and how much you truly have to spend, you could end up facing financial some major issues.

That’s why now’s a good time to take a step back and look at your personal finances – and budget. It’s all too easy to rely on credit cards or short-term loans (like payday loans) to offset the holiday gift-giving craze. But these options can lead to further problems of debt and unneeded stress.

So, before you head out to take advantage of any major (or last-minute) shopping deals, take a moment to review your income and spending.

Assessing your spending

If you’ve never taken a good look at your income and spending, or if you haven’t done so in a while, now’s the time.

  • The first thing you should do is break down how much money you bring home in a given month. This means your take-home or net (after taxes) pay. Include all of your main sources of income, including those from your main job, side gigs, alimony, and so forth. Write down the total amount.
  • Next, go through all of your fixed expenses. This includes things like rent, utilities, and other regular monthly payments (including debts). Tally everything up.
  • From there, try to calculate how much you spend on things that vary from month to month – like food, gas, or entertainment. If this tends to vary a lot, go through the past 3 months and average them out. Add the total amount to your fixed expenses.
  • Finally, subtract your total monthly expenses from your total monthly income. The remainder is how much you have left over.

For example, say you make $2,000 a month (after taxes) and spend $1,800. Your total remaining cash is $200. This is the amount you can use for holiday spending. Or, if you’re trying to reach certain financial goals (ex. saving or paying down debt), this is how much you can set aside.

Creating a Holiday Budget

Creating a budget can feel daunting, especially if you’ve never done it before. The good news is that it really doesn’t have to be that complicated.

Once you’ve figured out how much money you have left after bills, think about your goals for the holidays. If you don’t quite have enough, you can either cut back on spending or take on a side gig to give you some extra spending money.

Although it’s already November, you can always get a head start on next year’s holidays, too. Try to save up a little money each month – say $20 or $30 – and set it aside in a little envelope. Once the holiday season rolls around again, you’ll have a few hundred extra dollars to help with next year’s spending.

Survey says: Holidays likely to leave half of Americans dealing with debt

Recently, DebtHammer conducted a survey to see how much people spend around the holidays, as well as their outlook on their financial future.

Results show that about 50% of shoppers are planning to take on new short-term debt this year during the Christmas season to cover their extra costs, and getting through the season is taking a toll on emotional health, causing depression, crying, compulsive overspending and even suicidal thoughts.

According to the survey, around 63% of people plan to spend no more than $500 on gifts this holiday season. Another 17% of people plan to spend $751 to $1,000 or more. Over half of those surveyed indicated they would be cutting back on spending this year due to things like rising inflation.

Some people are prepared for the holiday season – 41% of people have enough money to make it through without taking on any debt. However, the majority of people are feeling the pressure as the holidays approach. For some, the only solution seems to be taking on payday loans, title loans, or using “Buy Now, Pay Later” plans – all of which could get them into further debt.

READ MORE: Half of Americans Will Rack Up Debt over Holidays, Survey Shows

Ways to limit holiday spending

There are many strategies that can help reduce the cost of holiday spending – without having to take on a loan, max out your credit cards, or use a cash advance app. Here are some things you can do right now:

  • Use your personal budget. Use your personal budget to determine how much you can realistically spend each month without going into debt. If you’re worried about using a credit card or overdrawing from your bank account, take out some cash and limit yourself to that. While you’re at it, set a limit for online purchases to reduce the risk of overspending.
  • Tackle other budgeting issues. Making some financial goals for yourself can help you get back – or stay – on track. This means starting an emergency fund, maxing out your retirement fund, and more. This might take some time, but it will be helpful in the long run.
  • Do a White Elephant gift exchange. With White Elephant, everyone contributes a single wrapped gift to a pool of gifts. Then, everybody draws a number to determine the order in which they choose a gift. The first player picks a gift, then the second person can either steal their gift or pick a new one. The game continues on until the last person has taken their turn. Not only is this a fun way of giving and receiving gifts, but it’s also more affordable.
  • Make and follow a list. It’s much easier to overspend when you don’t have a list, so make one before heading out. Try to only buy what’s on that list and nothing more – no matter how tempting the deals are that day.
  • Consider cheaper alternatives. Buy decorations at the Dollar Store or make homemade gifts to reduce costs. If you have time, get creative and use what you have at your disposal.
  • Take advantage of deals throughout the year. Rather than spending all of your money at once, shop throughout the year. Even if you end up spending more than you meant to, it may be easier to manage these smaller purchases.

Advice from the experts

Here is a Q&A with Dr. Monica Zimmerman, Professor and Executive Director of the Cottrell Entrepreneurship Center at West Chester University:

What’s the one piece of advice you’d give to anyone planning to go into debt due to holiday spending?
Dr. Zimmerman: Set a budget. Think long-term. It might feel good to engage in spending during the holidays, but it is painful to pay for that spending after the holiday festivities end. Remember the true meaning of the holiday.

What steps, in your opinion, can people take to help them stay on track with budgeting this holiday season?
Dr. Zimmerman:
If your funds are limited and you want to buy gifts for others, try to hold off on buying yourself things during the holidays. Many items go on sale in January. If you refrain from buying yourself things during the holidays, you can reward yourself in January and buy something on sale.

What’s the most important piece of advice you have to help get people started on a savings plan for next year’s holiday season?
Dr. Zimmerman: Set a savings goal, imagine how great you will feel when you reach that goal, and create a plan to achieve the goal. Try to break your plan into weekly increments. What can you do each week to achieve your savings goal? Can you skip one gourmet coffee each week? Skipping one $7.50 coffee each week for 52 weeks will save you almost $400. Packing a lunch instead of buying a $20 lunch one day each week for 52 weeks will save you over $1,000. Look for expenses you can cut, such as unused subscriptions.

The bottom line

The last thing you need this, or any other, holiday season is to be stressed out or take on debt just to get through. Take a hard look at your income and spending and, if necessary, cut back where you can. You don’t need to resolve all of your financial problems at once, so try to tackle one thing at a time. That way, by the time the next holiday season comes around, you’ll be more prepared than ever before.

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