The holiday season opens unofficially this week. At this time of year, many families dig a financial hole for themselves that they spend most of the following year trying to escape.
It's hard to avoid. Living in Washington, and most other urban areas, is expensive, and a lot of people find that everyday expenses eat up the majority of their paychecks. This means that when the holidays roll around, with the pressures to entertain, provide presents and travel, these folks often feel they must borrow or disappoint friends and loved ones at what is supposed to be the most joyous time of the year.
In addition, a certain number of people simply let holiday spending get out of hand. Once their credit cards are out of their wallets, they find it tough not to buy presents and other items that they know they can't afford.
And this year there is an extra temptation: online shopping.
With conventional holiday shopping, you have to go to the mall and hand over the plastic or cash each time you buy something, and each one of those transactions gives you a chance to pause and reconsider.
In fact, Fairfax financial planner Ric Edelman recommends a really workable system for dealing with holiday overspending--at least for in-person shopping.
He suggests that you first make a list of the people you have to buy presents for, and decide on the amount you want to spend on each one. Write it down and add it up. If it's too much, then go back and cut.
When you get to a figure you can manage, go to the bank and get that amount of cash, then start shopping. When it runs out, you're done. The system restrains impulse spending because you know if you go over on Uncle Bill, you won't have enough for Aunt Mary.
This is a workable system, and if you stick to it you can get through the gift-giving part of the holidays without adding debt. And having done that, you may find yourself able to do some saving next year, instead of using all your income to pay off your credit-card bills.
Online shopping presents a different challenge. Edelman noted that consumers can't very well use cash to buy online, and using a credit card "they could spend up to that [card's] limit, which is very dangerous."
"You have very deep pockets online," he said.
On the other hand, he added, consumers may actually do less browsing online than they do in malls. "If you want a sweater, you click on sweaters. You don't pass dozens of stores and hundreds of aisles on your way," he said.
His message: if you shop online, decide what you want before signing on and "don't browse." In addition, when you shop online, remember that you're using a computer, and one thing that computers are good at is computing. Use that capacity to keep track of your spending.
If you're really good with computers you can probably write yourself a little program to do this, or figure out how to use existing software to do it automatically, but that isn't necessary.
All you really need to do is create a spreadsheet, type in your shopping list and key in your purchases as you make them.
With Microsoft programs, for example, you can set up your list in Excel and then minimize it at the bottom of your screen as you go shopping. Each time you reach that point when the online merchant gives you a total or your software asks, "Are you sure you want to charge $X to" whatever card you're using, pop Excel back up and enter the amount.
You also can jot the amounts down on paper and enter them on the spreadsheet at the end of your shopping session.
This is not rocket science. It isn't even computer science. It's mostly self-discipline. And unlike a winning lottery ticket or a founding interest in a software company, it's available to everyone.
The key goal, whether you shop in person or online, is to keep your holiday spending in line with your resources. Credit-card debt, even for those who have relatively low-rate cards, is quite expensive, and it consumes money that could go for saving.
Think of it as a spiral. When you cut debt, you have money to save (the payments you don't have to make). That, in turn, grows over time and enables you to buy more things for cash--even, eventually, big items such as appliances and cars. That cuts out even more debt, and so on.
But it all begins with not spending money you don't have. If you can make a budget and stay within it, you really have a chance to get ahead. And in a few years, when your family can afford a house or a nice car or an expensive college, remind the kids that the $100 sneakers they didn't get are part of the reason.
It'll give them something to think about, too.