How to avoid bad end-of-year financial decisions.
It’s the final month of the year and that means it’s also the season when a lot of people do serious damage to their finances. To avoid becoming a negative financial statistic, make sure you avoid these three financial pitfalls at year-end.
1. Holiday Overspending
The temptation to spend a lot of money, or even rack up excessive credit card debt, is never greater than the last part of the year. Some people have already gone all out with food and holiday decorations for past events like Halloween parties, Thanksgiving Day celebrations, or family dinners.
But right now, others are planning get togethers during Christmas, Hanukkah or Kwanzaa. Feel free to enjoy this time, but don’t go overboard.
Of course, many individuals go hog-wild buying last-minute gifts and presents for family members, friends, colleagues and others. And still, others spend gobs of money on holiday travel.
Even if you’re shopping for a big family, visiting relatives who live far away or simply entertaining at home, keep tabs on your overall spending, and don’t overdo it. Set a realistic budget for various categories of your spending so you’ll see where your money is going, and also consider areas where you can cut back.
Resist the temptation to keep buying little extras for yourself during December simply because you’re thinking, “I worked hard all year, so I deserve it!”
You also deserve to have a life free of financial stress. And you don’t want to have to worry about how you’re going to pay all those holiday bills when the New Year rolls around.
2. Credit Catastrophes
For many people engaging in lots of year-end shopping, those trips to the mall or to various retailers also pose a danger to your credit health. During the last three months of the year, you’ll get more solicitations than ever to open new credit card accounts, particularly department store credit cards.
You know what I mean, right? I’m referring to all those nice sales clerks – both women and men – who work the cash registers at the stores where you shop. They’ll typically ask you something like, “Would you like to save 10% off your purchase?”
By that question, of course, they mean they want you to apply for and use a store credit card in order to finance your purchase. The problem with this is that when you apply for that store credit card, it generates a hard inquiry on your credit report. That inquiry stays on your credit report for two years, and it counts against you for one year, for the purpose of your FICO credit score calculation.
So not only can a credit inquiry lower your credit score, but a slew of credit inquiries caused by you applying for multiple credit cards during the holiday season can do even more damage. The solution: just say “No” to those department store credit card offers.
3. Family Loans
If there’s one thing I’ve learned as a money coach, it’s that managing your money wisely is largely about managing your emotions and making smart financial choices – even when your heart might be inclined to do something else. Using your head and not your heart, is especially tough at year-end when a close friend or relative reaches out for to request money or a loan. Your heart may want to say yes, even if it’s their third, fourth or fifth time needing a loan this year!
Most of us feel reluctant or guilty about saying “No” to family, even to those relatives we know have been financially irresponsible with money. Not to mention that people who are habitual money-drainers often know how to pull at your heart strings or convince you that you are practically their last chance on earth.
So they’ll say things like, “You know I wouldn’t ask if it wasn’t a real emergency” or “I’m only asking you because I’m desperate.” Once you ask a relative what they need the money for, only you can be the judge of whether it’s a real emergency – or whether you’re really about to fork over money behind some foolishness.
Either way, just be cognizant that during the final stretch of the year, people with financial problems, especially chronic financial problems, tend to reach out more often for aid. Personally, I don’t like to loan money; I’d prefer to give it – but not repeatedly, and only under circumstances where the need is real and valid, not just to subsidize someone else’s poor decision-making or ongoing drama.
For others, I suggest if you’re going to give, do so with a generous heart, and with the understanding that a “loan” might not ever get repaid. Since that’s often the case, it’s wise to only loan what you can afford to give. That will make your holidays – and the future months ahead – much merrier for all involved.