Are you
ready for the holiday rush and buying spree? Traditionally, the holidays bring
us a time of sharing and giving. But the cost of giving has increased over the
years and you need to be aware of the burden it could put on your financial
situation. With the change in most individual’s financial situation over the
past year, this is a good time to reevaluate your holiday gift giving.
Most
families spend around $500 on holiday gifts. If you put all those gifts on your
credit card, the end result may surprise you. Do you have any idea how long you
will be paying off those holiday gifts if you can only make the minimum payment
each month? Let’s do some math:
$500 of holiday gifts: Let’s say you charge $500 on your
credit card and only make the minimum monthly payment of $20. Some credit cards
now are around the 19.99% interest rate for long period payoffs, you will be
paying on those holiday gifts for 3 years! And to top it off, you will be
paying the credit card company an additional $153 in interest (see Federal
Reserve website - www.federalreserve.gov/creditcardcalculator).
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What if your gifts top the $1000 mark:
Now you have an
after-the-holidays credit card bill starting at $1000, with the same $20 of
minimum monthly payment and 19.99% interest rate. Are you sitting down? It will
take you 9 years to pay off those gifts you purchased! The credit card company
will be happy because you will pay them $1,167 in interest. Yes, that is
correct you will be giving $1000 worth of holiday gifts to your friends and
family, plus over time more than a $1000 gift to your credit card company.
Not to
be a Scrooge, but there is a downside to credit card use if you can not pay it
off in a month or two. Another option is the cash envelope and gift list
method. Make a list of people you will be buying for, a dollar amount for each
person and some great gift ideas you know they will love. Now hit the mall with
list and cash envelope in hand. Your goal is not to purchase more than you have
in your envelope.
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A last
tip to remember: the holidays are not always about the purchased gifts. Think
back on all the unwanted, unneeded or forgotten gifts you have received over
the years. If you were able to have something different from the giver, what
would it have been? What were the best holiday
gifts you have received? Was it the homemade cookies, the framed children’s art
work or just being able to spend time with your family and friends? The holidays
are truly about sharing and giving; think about using your heart and mind instead
of your credit card. Have a Happy and Financially Safe holiday!
Kimberly J. Howard, CFP®,
CRPC® is a Certified Financial Planner and the owner of KJH Financial Services,
a Fee-Only practice located in Needham, MA (781-413-4879). Please visit us at www.kjhfinancialservices.com or email Kim at kim@kjhfinancialservices.com.