Prevent Holiday Buyer’s Remorse: How and What to Track (Financially) This Season

Rod Ebrahimi



Rod Ebrahimi, CEO ReadyForZero



Just the anticipation of holiday spending is enough to make most people anxious. Let’s face it, gifts and travel during the holidays cost a lot. If you add the social cost of not spending “enough” on the people you love and how easy the credit card companies make it to overspend, the holidays have their way of getting you depressed and making you broke. The holidays are in part why “getting out of debt” is a top New Year’s resolution almost every year in the United States.

Fortunately, there are a few things you can do to prevent what we like to refer to as “holiday buyer’s remorse”:

1. Set a fixed budget, then work backwards against it by focusing your gift purchases on your closest family and friends.

Start with $400 then list the family members that you have to purchase for this year. List the amounts that you want to spend on each person. Then use whatever you have left over to spend on others who are slightly less of a priority to purchase for.

This shouldn’t take long and could be done quickly on the back of a napkin.

For those more technically inclined, you could use something like our spreadsheet. We have created a gift list, categorized the items and included the actual cost if we used a credit card to make the purchases.

  

2. Categorize your list so you can save time by shopping early and targeting specific stores.

Put a day in your calendar and go shopping early at specific stores as opposed to heading to the mall and walking around. By categorizing your items you avoid wasting time at the mall wandering around and, inevitably, overspending. Malls and shopping centers are designed to disorient in an effort to get you to buy stuff you don’t need because it’s on sale or convenient. This strategy paces and targets all your shopping. If you are like most people, time is money and you don’t want to get stuck wasting it.

Don’t spend too much time on this part—just make sure to schedule a single day or a few days to go shopping by category.

See the store column in the sample spreadsheet.

3. Avoid credit cards BUT if you do use them, be sure to calculate the actual cost of the items and make a plan (in advance) for paying off the purchases immediately.

Let’s say you just can’t afford those plane tickets back east and that pair of diamond earrings for your wife this year. If cutting them out isn’t an option and you need to charge them on your credit card, be sure to run this calculation and understand the estimated “actual cost” of the items in question.

This method assumes it will take you one year to pay off the items and doesn’t include other fees that typically accompany credit card purchases.

Here’s how to do it:

retail price x 1.(interest rate)

(average national credit card annual interest rate is about 15%)

• For a $100 charged on a credit card with an annual interest rate of 15%: $100 x 1.15 = estimated actual cost = $115
• For a $500 charged on a credit card with an annual interest rate of 10%: $500 x 1.10 = estimated actual cost = $550

See also the “actual cost” column in our spreadsheet aka the “reality check” column.

This assumes I don’t have an existing balance on my credit card and that I make payments well above the suggested minimum payments in order to payoff my purchases quickly. If I made just the minimum payments, I will pay a lot more interest and it will take me many years to pay off these items. These are approximations and the exact numbers depend on how your credit card calculates interest but they are good enough for our purposes.

We know, it’s easier said than done but the holidays are supposed to be a relaxing time to share with friends and family. Hopefully, these simple tips can help you avoid overspending this year.

Rod Ebrahimi is co-founder and CEO of ReadyForZero, an online personal finance application that helps consumers get out of credit card debt and manage their credit reputations. ReadyForZero’s proprietary technology leverages the Yodlee platform to create visibility and provide personalized recommendations in order to save consumers time and money. Their public launch is slated for early February 2011.