Preparing in Advance to Avoid Debt in The Future
There are certain events that come every year, yet some people never add them into their budget. As a result, they go over their budget or incur new debt, because they didn’t plan ahead. Holidays, special occasions and recurring seasonal spending are all things that you should factor into your budget. These aren’t unexpected events, but if you wait until the last minute to plan your spending, you are more likely to get caught up in the moment and pay more than you really should, or spend more than you can responsibly afford.
The Debt Year-At-A-Glance
According research done by debtconsolidation.com, there are some very compelling reasons why you should make a date with debt:
- January – 36% of holiday shoppers start their new year with credit card debt.
- February – The average American spends $126.03 celebrating Valentine’s Day
- March – College students spend an average of $1,100.00 for a one-week spring break.
- April – The end of tax season, if you don’t file before April 15th, you can pay up to 25% of what you owe in penalties.
- July – The average family vacation costs $1,415.00
- September – School supplies cost parent an average of $688.62
- December – It’s time for holiday shopping, are you going to spend as much as you did last year, or more?
These are regular events that you can count on like clockwork. These figures don’t include other occasions like birthdays, weddings, anniversaries and graduations. Even though not all of these events are reoccurring, you usually know about them far enough in advance to plan ahead financially. Now that you know what you’re facing; it’s time to figure out how to be prepared and avoid going overboard.
Winter Holidays and the New Year
Santa Claus isn’t the only one who should be making a list and checking it twice. Make a list of every person you intend to buy presents for and set a fixed amount for each person. Total up your list and then you figure out how to work that amount into your fixed expenses. You might want to spend a little every month throughout the year or save all year long in a special savings account so that you have cash on hand when you hit the stores. However you do it, you know you are going to be giving gifts in December every year so don’t wait until the last minute and put the presents on your credit cards.
There is nothing wrong with celebrating New Year’s Eve, but don’t wait until you are in the middle of holiday shopping to start making plans for a night out or having a party. If you want to splurge on a fancy New Year’s celebration, then make sure you have the means to pay for it before the Thanksgiving to New Year’s rush starts. Make your plans well ahead of time so that you don’t wake up on New Year’s Day and realize that you spent a small fortune the night before. Do the same thing for Valentine’s Day as well.
Spring Cleaning and Taxes
Taxes are something you should think about all year long, not just between January and April. If you plan on itemizing your deductions, make sure to keep your receipts so that you have everything on ready when you go to file. All of your tax forms from employers and/or clients, your mortgage company, etc., should be in the mail by January 31st. If you haven’t received all the paperwork you need by mid-February, then start calling around and make sure the forms are on their way. The last thing you want to do is wait until April and figure out you’re missing something you need to file your taxes.
If you plan on doing some spring home improvement projects either have some money saved up or wait until you get your tax refund. Try to avoid taking out loans or borrowing money. You are better off to save up what you need or use “found money” like your tax refund than to go deeper into debt. Even if a home equity loan offers an attractive rate, you are better off to keep your equity unless your home needs major repairs.
Summer Spending and Fall Expenses
Book your family vacations well in advance. The earlier you book, the less you’ll spend. Try to plan your trips during non-holiday weeks and avoid the rate hikes that come around Memorial Day, Fourth of July and Labor Day. As soon as you receive an invite to a wedding or graduation, both of which are often summer events, start working out how much you are going to spend on gifts and see how you can trim some money off your other expenses to pay for it without dipping into your savings.
Even if you don’t have children and school expenses to deal with, many people face home winterization costs in the fall. You may also have winterization expenses for other items like personal watercraft or a trailer at the beach. Since you know these costs will come every fall, try to set aside a little money throughout the year to pay for these expenses. If you spread it out over twelve months then you won’t feel the sting of a lot of money coming out of your account in one fell swoop. Barring that, at least try to split projects up from September to November so that you can spread out your bills.
While it is difficult to sit down at the beginning of every year and anticipate all your expenses, you can include the ones you know will be coming. Additionally, you should have a separate savings account for the things that you don’t know about at the start of the year. This can be part of your emergency fund, or just extra “funny money” set aside for when you have a need for it. Saving all year long is a good way to split up your reoccurring yearly expenses and make sure that when a special event comes up, you can give an appropriate gift without any guilt.
About the Author: Tony Standin is a personal finance specialist who learned a hard life lesson about creating debt every holiday season – debt it often took months to pay off at high interest rates. He now plans, budgets, and does his best to avoid creating debt.
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Category: Financial Planning
