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Financial black holes to avoid during the festive season

Wednesday December 9 2009

If ever there is a time when the purse strings are loosened, it is during the festive season. While there is inevitably more spending because of activities such as travel, get-togethers and parties, and gift-giving, it should not be a license to over-spending, says Diana Gachukia, a financial consultant with Zenith Ventures and Capital Financiers.

“Spend in haste repay at leisure, really applies during the festive season,” she says. “Many financial disasters begin with overspending in the last month of the year, carry over into the heavy obligations of the first month and culminate in debt, either in the form of credit card debt or loans with interest,” she notes.
Below Ms Gachukia outlines situations that have the potential to put one in the red and to avoid or overcome them.

Credit card debt

This is the first debt one should try to avoid or clear up because it compounds to a lot in a short time. “It is especially tricky to incur and fail to make payments on credit card debt because the following month of January is one with heavy obligations like school requirements for those with families and renewing annual contracts like insurance,” she notes.

Avoiding situations that would make incurring debt such as shopping without a budget and not factoring in all that is needed if taking a vacation away from home can force one to use their credit card to pay.

Low or depleted savings

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Overspending will definitely make a dent in one’s savings account, which may mean incurring debt later on in the year, especially if there is no emergency fund. Putting away the regular amount into the savings account before going out shopping is advisable, Ms Gachukia advises.

Out of budget festive shopping

Take advantage of offers and bargains to shop in bulk. Apart from the main day, shop for New Year festivities and January which is a burdened month for many and for school boarders. Redeem supermarket loyalty points too and make a saving on purchases. Look for offers and discounts on items like clothes and shoes too.

Misusing gains like dividends and bonuses

If there are yearly benefits and other gains like dividends, don’t waste but compound them by reinvesting them, using the money to pay off debt, especially high interest debt or building up an emergency account.

Making no allowance for annual contracts and major expenses

Ideally, yearly payments such as those for insurance and investment plans should be factored in, if not possible at once at the beginning of the year, then into smaller payments every month so that they are not overwhelming to pay all at once, advises Ms Gachukia.

Not having a written plan

Writing out resolutions in the light of the dawn of a new year is one thing but a concrete plan and sticking to it is another thing, she observes.

Write down specific financial goals and break them down into monthly and daily activities. If it’s spending less, specify on which items and how you’ll spend less, such as shopping for household items for less by changing to cheaper brands and less on transport by leaving the car home sometimes, are specific goals and action plans.

With all the festivities going on all around, it is not difficult to get swept into it. Celebrating with friends and family is great, but it shouldn’t be something that leaves you struggling to regain stability in the coming months.

Ensure when the Christmas lights are turned off and the carol singing is over, you are not nursing financial hangovers but steadily moving forward, still on track and in tune with your goals.

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