Celebrating Without Breaking the Bank : Planning Ahead for ‘Spending Season’
A penny saved is a holiday gift without a credit card slip attached. That’s what financial advisers tell their clients as part of a plan-ahead strategy for the annual gift-giving season.
“People can run into problems at this time of year and suddenly find themselves pulling out the credit cards,” said Bonnie Daigh, certified financial planner with Daigh & Associates in Rancho Bernardo. “As much as they would like to make someone happy, at 19% interest, credit cards need to be managed.”
Daigh is working with one couple who bought an expensive item they couldn’t resist. Now they are struggling to pay the credit card interest, while the principal remains the same month after month.
Daigh’s advice:
* Keep only one credit card and use it just in emergencies. If that is not practical in your situation, commit yourself to using the card only to the extent you can pay off the balance monthly, thus avoiding costly interest charges.
* Keep a record of all credit card purchases. Paying a monthly finance charge on the entire amount each month, including the accrued interest charges, can boost the cost of a big-ticket item to two and three times the original amount.
* Be a smart shopper and resist impulse buying. Spend time making a list of holiday gifts and the amount to be spent on each before going shopping. This may mean compromises, such as spending less on a gift for a grandparent in order to buy a bicycle for a child.
Daigh also warns that some credit cards are “debit cards,” meaning the money charged is deducted immediately from one’s checking account. “I’m seeing more of these kinds of cards in the last couple of years; the kind that service stations and grocery stores use,” Daigh said. “People need to keep track of these purchases or the money just won’t be there.”
With a mere 23 days until Hanukkah and 28 until Christmas, these measures will help some shoppers, but the real key for a stress-free holiday is to plan ahead.
“For the long term, it still holds that you won’t have a handle on holiday spending unless you start from the beginning and analyze all of your consumption,” said John T. Blankinship, certified financial planner with Blankinship & Foster in Del Mar. He recommends writing down all purchases and payments in a given month.
“Gifts and holidays are an extraordinary annual variable,” Blankinship said. “The only way to plan is to find out where all your dollars are going and then determine how much is left over that you can spend. Having control over your financial life leads to tranquillity and calm, but it takes effort to get in control.”
Some people do not consider cash purchases when planning their monthly budgets, Blankinship said. One client, who bought four to five compact discs a month, discovered that his uncounted out-of-pocket purchases added up to some $70.
“Write down everything, including the $2 for a (fast-food) hamburger,” Blankinship said. “People who earn a lot have as much difficulty as those with more modest amounts of money.”
With his partner, Charles E. Foster, Blankinship recently published a book titled, “The Six Cups: How to Manage Your Money.”
Here are some of their suggestions:
* If you are paid every other week, 26 times a year, you have two “extra” checks. Allocate one of those for holiday spending. Live on two paychecks per month, every month.
* If your annual salary is higher than the Social Security wage base ($55,500 in 1992 and $57,600 in 1993), your take-home pay will increase at the end of the year when Social Security taxes are no longer deducted. Use the “raise” to fund some goal, such as holiday expenses.
* Put funds for monthly expenses into a checking account. Put funds for annual and variable expenses, such as holiday shopping, into a special savings account.
* Allocate interest earned on a savings account to your special account.
One special account that has been in existence since 1928 at the Bank of America is the Christmas Club. Sign-up is open throughout the year, and checks are issued the second week of November, according to Kay Lucas, senior section manager at the Escondido branch.
“We have quite a few people who use it,” Lucas said. “If you draw the money out, you automatically close the account and forfeit the interest. Since you can’t take money out, it forces people to save.”
Interest rates are about 3%, which is the same as for a regular passbook savings account, Lucas said. The minimum deposit is $20 per month, and customers can elect to have automatic deposits on a weekly, biweekly or monthly basis.
At San Diego Trust & Savings Bank, Christmas Club accounts are closed Oct. 31, and checks are issued the first week in November. The current interest rate of 2.5% is paid on the day the account closes, according to Susan Bankes, financial services representative in San Marcos. Bank customers can take money out of the account at any time without penalty.
Both Bankes and Lucas say that some people use the Christmas Club account as a savings account for taxes, as well as for holiday purchases. Parents can also open accounts for their children, although the minors don’t have access to the cash.
At San Diego Trust & Savings, there has been a decided downturn in the number of people who are using the Christmas Club account, according to Jackie Hill, vice president of public relations. The number of checks sent out in 1992 was 2,000, which is down 86 from 1990 and down 212 from 1988.
However, the dollar amount saved each year has remained at about $1.2 million since 1988. The average check issued this year was $620, with the largest check at $6,800, Hill said.
As San Diego Trust & Saving’s Bankes said, “There is more of an incentive for people not to touch the money than if it co-mingled in a savings account.”
