Oran Hall Being money wise in the Yuletide frenzy
This is a time of year when many people struggle to balance their finances because it is spending time. People reach a high, which is followed by debt and headaches as they face reality and struggle to bring back order to their lives.
Individuals who have not been able to increase the money available for spending must manage how they spend very carefully to avoid being in a difficult financial situation. Being able to identify the various types of expenses can help greatly to manage spending.
First of all, it is important to know which expenses are required expenses. They are the expenses that we must incur to maintain our basic lifestyle. Among them are the following: food, utilities, rent or mortgage, and travel. Though required and necessary, it may be possible to make adjustments in some cases but not in others.
Those that cannot be adjusted are the fixed ones like rent or mortgage. Food, utilities, and travel are variable expenses. Though sometimes hard to do, they can be adjusted with some discipline.
Some expenses are recurrent. They are incurred on a regular basis. Food, utilities, rent or mortgage, and travel fall into this category. Periodic expenses are those that are not paid weekly or monthly, but quarterly, semi-annually, and annually. Examples are school fees, some insurance premiums, and motor vehicle fees. Many of these tend to be fixed. They leave little room for manoeuvre to balance the budget.
It is easy to forget periodic expenses when people are high on spending, so every effort should be made to have a mechanism to give a reminder of the obligation. It may be useful as well to put aside at set intervals a portion of the commitment so that enough will be available to pay in full at the due date.
Unlike required expenses, discretionary expenses are those that people can chose to eliminate without seriously affecting their basic lifestyle. Included in this group are gifts, charitable contributions, and entertainment – the big one. This is a troublesome group as these items become quite prominent in holiday seasons.
Other items take a good share of the budget as well, for example, painting of the house, buying new furniture, buying clothes, and travel.
To be money wise, especially at this time of year, the big question to ask is how much there is to spend with certainty, thus not counting what else could be available. Some people who earn commissions often make their plans on the basis of what they project to earn. This can be dangerous.
Having a serious budget that is adhered to makes it better to manage money, but it is even better when a budget for this time of year is built into the main budget. Additionally, it is good to start putting aside the funds from early in the year to improve the chances of covering the expenses. This should make it easier to avoid over- spending.
There are several ways to control spending. People in a family setting should engage the family in setting priorities and determining how the money is to be spent. Members should account to each other for how money is spent, but there should be one person who should be ultimately responsible for managing the family’s money.
Control spending by making a shopping list each time to exercise better control and avoid impulse buying. Additionally, avoid the spending triggers like window shopping and keeping the company of people whose company makes it difficult to resist the temptation to spend or who may even be the tempters. Further, shop around for the best deals, question every spending decision and delay spending decisions as much as possible because it has the potential to cause a reversal of such decisions. Use utilities carefully to reduce waste, and appoint a monitor to improve the chances of succeeding.
Keep the future in view by considering how today’s spending can affect the ability to spend on priorities in the future. At the same time, resist the temptation to incur debt to finance today’s spending. Bear in mind that borrowing today effectively reduces tomorrow’s money and that encroaching on savings and investments is not an option. Maintain an emergency fund to reduce the risk of this occurring.
Where borrowing is chosen as the means to acquire an asset, be careful not to use it for passing satisfaction. It is better to use it to acquire assets that have long-term value and are important and are of good quality, but limit borrowing to an amount that can be repaid without undue stress.
If there is a time to keep the credit card under control, it is when there is the holiday frenzy. Use the debit card or cash instead. Use the credit card only if there are funds to pay in full on the due date. Avoid making just the minimum payment.
As for extra money, like a bonus or a partner draw, keep a tight lid on spending it. Use it productively, save a portion, use it to reduce debt or for a useful purpose previously decided upon.
It is easy to get caught up in the spending frenzy, but it can be avoided with good planning and discipline.
Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.finviser.jm@gmail.com