Posts Tagged ‘spending’

The Folly of Holiday Stress

December 10, 2012

December 10, 2012

Written by: Deborah McGiffin, Durham County Extension Agent, Family & Consumer Sciences, North Carolina Cooperative Extension, North Carolina State University

No, no, no not ho, ho, ho.  Do you stress over your finances and spending during the holidays? Does holiday jolly seem like holiday folly to you?  Celebrating the holidays and other special occasions can often strain a families’ budget and cause them to expend large amounts of money and other resources. It’s no wonder that celebrating the holidays creates financial tension. Many people seriously underestimate what they will spend each year for holidays and special occasions. Spending can get drastically out of control with gifts, greeting cards, postage, gift wrap, decorations, food, drink, transportation, long distance phone calls, and other purchases during the holidays and can push a family into financial difficulty. The challenge of managing holiday spending is to enjoy the spirit of the season while avoiding the holiday financial hangover – that is, paying for it months or even years later. Keep the holiday spirit in and stay within your budget by using some of the suggestions below to help you plan, make the most of your resources, and avoid overspending.

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Look at the Big Picture  Review your current financial situation and determine a holiday spending limit that works with your family budget. The amount of money you spend should align with your family values. However, it is generally unwise to spend more than 1%-3% of your annual take home pay on holiday expenses. Once you know how much you can spend towards the holidays, develop a spending plan.

Develop a budget for gift-giving, food, travel and entertainment expenses. Additional expenses which can increase during the holidays and are often overlooked include gasoline, babysitter fees, special grocery items, and eating out more often.  Use the North Carolina Cooperative Extension’s Holiday Planner to be sure to account for these extra expenses.

Make a List and Check it Twice  Refer to your spending plan and use a planner to list all the people you wish to give gifts to, including family, teachers, babysitters, hair stylist, etc. Also, list other holiday purchases such as decorations, ingredients for holiday cooking, greeting cards, expected travel expenditures and so forth. Using your list, make entries into the planner for spending amounts allocated for each recipient, the amount you actually spend and the gift item purchased per person. Take the planner with you when you shop to help prevent impulse shopping. Save this planner in a “holiday file” for reference for future holiday budgeting and planning.  The information from this year’s planner can be useful in establishing a holiday account for next year.

Shop without Financially Dropping  Consider how you plan to pay for your holiday purchases. If you decide to pay in cash, divide the cash into amounts you plan to spend for each gift, select items within the price range, and stop shopping when all the cash is gone. If you plan to use a debit card, take your check register shopping and record each transaction in it, so you track your spending, maintain a current balance, and avoid overdrafts. Depending on your bank’s automated updates, your balance may not always be accurate and transactions may not be immediately deducted from your account. If you plan to use credit for holiday purchases, evaluate your overall credit before shopping. Charge only an amount you can safely repay in one or two months. As a general rule, never have credit payments that outlast the item bought. Limit charges to one card to facilitate easier bill paying and to have a clear picture of your total spending. Another option to consider: layaway plans. Layaway plans allow you to pay for purchases ahead of time with cash, checks or debit and then take procession of the purchase once the items are paid for.  Though layaway plans enable you to buy over time without debt, you will need to plan ahead to make purchases early enough to take advantage of this purchase method.  If you decide to use store layaway options, be certain to check their return policy and keep track of all payments. Shopping online can save time and gas. Many sites have free shipping deals. If shopping online, look for coupon codes or cash back offers.  Some sites that offer such deals are couponcabin.com, coolsavings.com, keycode.com, ebates.com and fatwallet.com. A google search for “promotional code” using a retailer’s name might also help you find deals.  Plan holiday shopping trips to stores or malls ahead of time, study store ads, and know exactly who and what you are shopping for prior to entering the store and don’t forget to take along your holiday planner. Impromptu shopping trips and meandering in stores looking for gift ideas can lead to impulse purchases and a derailed budget. Do your window shopping at home from catalogs or online, so that you know exactly what you plan to purchase. Finally, remember that holiday sales can be tempting, so once you are in the store, refer to your planner and holiday list.  Remember to account for each purchase you make in the planner so that you stick to your spending plan.

Don’t be a Scrooge, Just be Creative  The best gifts don’t have to be expensive or even be purchased. The best gifts are fun, useful and chosen with the recipient in mind. Use your talent, skill and love to create meaningful gifts from the kitchen, garden or home.  The gift of time is a precious gift. Give certificates with the promise to fulfill a personal service for special loved ones. General purpose (VISA or MASTERCARD) gift cards are good choices for out-of-town giving because they reduce packaging and shipping expenses.  Instead of buying separate gifts for members of a family, buy one family or household gift everyone will enjoy. Drawing names is a good way to celebrate the holidays while reducing the number of gifts for a large family or group of friends. Giving family treasures or heirlooms is a good way to make the holidays meaningful and institute estate planning goals. Don’t forget about giving practical gifts like smoke detectors or motion lights.  Elder relatives who have “everything” may appreciate these helpful gift choices.  Giving to a charity in someone’s name in lieu of a gift is a way to honor a special person. Pictures of past family or festive events placed in attractive frames make inexpensive yet thoughtful gifts.  Though it may be too late for 2012, shop throughout the year for gifts, as good deals for items can be found during end of season sales.  Set up a special shelf or box to collect and store gifts bought months in advance for holiday or special occasion giving, and don’t forget to write down the name of the intended recipient!

Season’s Greetings  The time and expense of sending out holiday greeting cards can add anxiety to anyone’s schedule.  Look for ways to alleviate this stressful holiday tradition.  Send out cards only to out-of-town family and friends whom you see infrequently. Send holiday postcards instead of regular cards and envelopes to save on postage.  E-cards have become a popular way to save time and money and send holiday greetings to those you care about. Consider sending out “Happy New Year” cards in early January to add more time to your holiday schedule and to accommodate for diverse faiths and beliefs among cherished family and family members.

Deck the Halls  The best time to buy holiday decorations along with wrapping paper and greeting cards is after the holiday season. Try to take advantage of the after holiday sales and store decorations until the next season. Other options include creating decorations using items from around your home, like old ribbons, buttons, and greenery from your yard.  Make children apart of the holiday planning by asking them to make decorations and display their artwork.  Make your own wrapping paper using brown parcel paper or left over paper bags, stickers, stamps, glitter, glue and your imagination.  Let decorating your home be a fun and creative event that promotes family resourcefulness and togetherness.

Home Sweet Home  Family gatherings and holiday parties can add emotional stress and a financial wrinkle to your budget if you feel compelled to host them.  Make social events fun and enjoyable for you and your guests by co-hosting an event with another friend or family member.  For special celebrations, evaluate the need for a meal.  Consider alternatives like hosting a late afternoon party and providing only appetizers or sponsor a potluck dinner that involves others and saves on time, expense and personal stress.

Over the River and Through the Woods   Traveling and visiting family and friends can be the most expensive part of holiday plans.  Shop early for the best deals on airfares and hotel stays. Try to avoid travelling during peak travel times like on weekends or the day prior to a major holiday.  Consider gathering with out-of-town family several days prior or several days after a holiday to avoid heavily congested roads and airports.  Also, think about celebrating family events during other times of the year when travel discounts are more available and traffic less hectic.

Seasonal Giving   Remembering the less fortunate is an important part of many holidays. While a contribution of money is always appreciated, a donation of time is also valuable. A realistic and affordable charitable goal should be included in your holiday spending plan or a donation of time should be part of your holiday schedule. Make your holidays a time for living, laughing, loving, sharing, caring, and learning. These are the things that money can’t buy, but they make for precious, memorable and meaningful holidays.

Remember the Spirits of Holidays Past, Present, and Future   Remember, don’t throw away your holiday budget after the holidays. Keep it along with holiday receipts and credit card statements then make it a New Year’s resolution to develop a 2013 holiday and a special occasion spending plan in January that can be followed throughout the year.  Establish a dedicated holiday or special occasion account without an ATM card at a local financial institution.  This will enable you to set aside funds that can be used not only during holidays but also for other occasions like weddings, birthdays and anniversaries.  You also will have more flexibility if you come across great gift deals that can be purchased at any time during the year and stored away until you wish to give the gift.  Avoid holiday folly.  Put jolly in the seasons to come, and “ho, ho, ho,” holiday stress away.

National Financial Management Core Competencies: Spending, Saving, Borrowing

If using this post, please cite:

Dollardecisions.wordpress.com, 

McGiffin, D. (2012, month). The Folly of Holiday Stress.  Dollardecisions. Retrieved Month, date, year, from

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Chain Purchasing: The Diderot Effect

March 19, 2012

By Deborah J. Taylor, Extension Agent, Orange County 

The vast majority of Americans are trapped in a “work and spend” cycle. As a society, we have at our disposal an abundance of material goods, which we have to work at an incredible pace to pay for. Many Americans spend more than they earn. Typically when Americans purchase one item, an upgrade of another item is required. This is referred to as the Diderot effect.

The Diderot effect is a social phenomenon related to consumer goods, which results in spiraling consumption (chain purchasing) resulting from dissatisfaction created by a new possession. The term was coined by anthropologist and scholar of consumption patterns, Grant McCracken, in 1988, and is named after the French philosopher Denis Diderot (1713-1784) who first described the effect in an essay. The term has subsequently come to be used, especially in discussion of sustainable consumption or green consumerism, to refer to the process whereby a purchase or gift creates dissatisfaction with existing possessions and environment, provoking a potentially spiraling pattern of consumption with negative environmental, psychological and social impacts.

For example, Jane buys a new couch for $400 for her living room to replace the old, donated one she’d had for the past 10 years. Now that it’s in her home, her living room chair looks shabby and outdated. Jane decides she must also replace this chair to complete her living room’s new look. However, once the new chair, which cost $250, is in place, Jane can’t help but notice how dirty and dingy the carpet looks beside the clean, new furniture upholstery. Jane decides to replace the living room carpet, but finds she’ll get a “better price” if she replaces all the carpet in her home. The total cost for replacing the carpet is $2,300. Jane’s original $400 purchase has now escalated into nearly $3,000.

For the unsuspecting consumer, the Diderot effect can be invisible in the marketplace. With the proliferation of commercials and other marketing strategies being thrust upon consumers around the clock, the insidious side effects can be far-reaching and damaging to individuals and families. Advertisers often look for people who are trendsetters to promote their products and get the ball rolling in influencing the masses to buy certain goods in order to follow suit. In every area of our lives, we are coerced into buying more items to supplement the new items we have purchased. If you buy a new dress, you will need new shoes or a new handbag. If you buy a new couch, you’ll need a new chair. Although some of this need to constantly “add-on” or upgrade” is driven by aesthetics, manufacturers also drive some of it. For example, in the area of electronics, old equipment may not be compatible with new equipment. An example: having to buy a new printer to go with a newly purchased computer because the connections on the old printer are not compatible with the ones on the new computer.

How can consumers avoid falling prey to the Diderot effect or chain purchasing?

  • Control your desire to purchase. Stay away from malls and other places where you may be tempted to spend. When you buy a product, think about how much “more” you’ll need to fulfill that purchase (more games for the game console, more accessories for the redone kitchen, etc.).
  • Create a new consumer symbolism, making it less attractive to be exclusive. Whenever you see a symbol of excessive spending, look at it for what it is: successful marketing. If you desire a certain item, ask yourself if you really need it.
  • Control yourself by placing voluntary restraints on competitive consumption. Not only encourage yourself, but also encourage your friends and associates to put caps on spending. Get involved in making group decisions and suggest spending caps. You’ll often find that others are relieved too
  • Learn to share. Consider sharing expensive purchases (like a lawnmower) with your neighbors. Consider rentals or secondhand items when shopping for sporting equipment and narrow-use items. Use your local libraries for books, DVDs and CDs.
  • Become an educated consumer and deconstruct the commercial system. Deconstruct every ad you see. When you see a product you want, research it and understand it before making the purchase.
  • Avoid “retail therapy”. Spending can be addictive. If a particular mood or event triggers a desire to shop, find other ways to spend time or relieve stress
  • Make time. Look for ways to reduce the time you spend working so you can increase the time doing things that are more valuable to you, and things that potentially can save you money. Choose activities to do with that extra time that don’t involve spending and consumerism.
  • Work toward coordinated intervention. Look for larger societal solutions to this issue. Get involved in organizations that focus on consumer issues and reducing spending. 

References

Brewer, P. February 27, 2012. Lifestyle Upgrades: Beware of the Diderot Effect. http://www.wisebread.com/lifestyle-upgrades-beware-the-diderot-effect.

Manning, L and Mahar, Carla  (2007). Teaching Your Children About Money. G1787, University of Nebrask – Lincoln Extension.

Schor, Juliet B. (1998). The Overspent American: Why We Want What We Don’t Need. New York: Basic Books.

Take Control for Your Future: Telling the Kids: We Need to Spend Less. North Carolina Cooperative Extension – March, 2009.

Core competencies discussed in this post: Spending, saving
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Using “Auto-Pilot” to Start Budgeting

February 3, 2012


By Carolyn Bird with Molly Herndon

At the end of last year, a freelance reporter contacted me with a request to provide “steps that disorganized, messy, resolution-proof people can take to shore up and improve their financial situations.” In the reporter’s language, the information “is for people who are unlikely to make — much less keep a real budget.’

Here are some effective strategies to help your clients manage and improve their financial situation in the New Year. By investing a little time to put some systems in place, a person can save time and money throughout the year.

First, check to see how much money is coming in and how often. A good place to start is with “take home” pay. This is the amount that your client or her employer deposits into the client’s bank account.

Second, sort the bills into those that have the same amount due every month and those for which the amounts vary. The payments that do not change are called “fixed expenses” and include bills such as rent or mortgage payments. Some utilities may fall into this category as well, such as: cable television, Internet provider service, cell phone contract amount (if you stay within your plan). Even the electric and other utilities can be a fixed dollar amount each month if the provider offers a “budget plan” that averages annual usage over 12 months. Suggest that your clients check with their gas and/or electric service provider to see if a budget plan is available.

Third, if your client is paid more than once per month, decide which bills will be paid during each income period. Clients may need to allocate half of the amount from two pay periods during the month to pay the larger bills such as rent or mortgage.

Fourth, encourage clients to use the electronic bill pay service offered at their financial institution. Using the information on the company’s invoice or bill, clients can set up payment for each of the fixed payment bills. The key is to be sure to select a payment date so the payment will arrive on time. One final check after setting up accounts for payment is to remember to verify that each bill is accounted for in its income period. This will help avoid overspending for an income period.

Fifth, clients can use a calendar and mark “online dates” for paying bills. These dates will likely be close to the client’s payday. For example, if your client will be paid on February 1st, then February 1st or 2nd might be good days for an online date. On the selected date, your client can log into his account and approve the bills for payment. It is possible to set payments for automatic processing on a certain date, but I suggest that those new to budgeting use the manual processing procedure. Manual processing provides one more opportunity to double-check the numbers, and if there is an error, to avoid over-spending. Using this method will reduce the time needed to manage monthly finances and it will help the client avoid fees from late payments or bounced checks. For example, if your client carries a credit card balance, setting up an automatic payment for at least the minimum amount due will avoid late fees. Additional payments can always be made in the same or a different pay period.

If the due dates are too close to pay dates to allow the payments to arrive on-time, your client can contact each company and ask for a later due date. Be aware that it may take one or two billing cycles for the due date change to take place. Another technique to avoid account overdraft is to establish an account dedicated to bill payments. This is particularly useful for clients who don’t keep a running balance for the checking or transaction account. A separate bill-payment account can reduce bill-paying stress. Each pay period, the necessary amount of money to cover the bills or the amount of money to be allocated against a bill (like rent or mortgage) is transferred to the bill-payment account. This way, a forgotten ATM transaction will not jeopardize the ability to pay bills. A dedicated bill-payment account can be an effective way for dual income couples to contribute to and manage household bill payments.

Now that your client has identified how much income is devoted to fixed payments, the balance can be allocated across variable expenses.

Other tips for managing money on the go:

  • Set up an alert for notification when a deposit is made to an account.
  • Set up an automatic transfer from checking to savings; start with what you can afford and increase it overtime. This can be $5 or $10.
  • Set up an alert for when the account balance falls to a certain amount, it might $100, $50 or whatever number is meaningful for your client. What the alert means will be individual to your client. But in any case it is a signal to seriously consider each financial transaction.  How your client responds will vary from curtailing eating out, skipping an outing with friends, or resisting a clothing purchase. The important thing is for your client to decide what will help him to live within his income and to tailor the alert accordingly.

Lastly, these strategies are great steps toward establishing a budget. The budget is a tool that helps identify where the money goes each month. It offers an opportunity to decide if your money is really being spent the way you would like. The budget works for your client to help him meet financial goals. It may be useful to provide your client with a spending tracking tool, like this one .

A budget can also remind us that while a cost is fixed in the short run, it is variable in the long run. This means that if a utility expense (such as cell phone, cable, Internet, etc.) is too high, it may not be possible to reduce the rate right now but your client can shop for a better rate when the contract nears renewal. Or your client may decide to do away with a service for a while. Similarly, your client can look for a more reasonable place to live or one that is closer to work to reduce the cost of housing or transportation. By highlighting spending choices that may not be working so well, a budget can be used as a comparative tool when considering spending alternatives.

This blog focuses on the national core competency of “spending.” The competency behaviors discussed included: tracking spending and living within your means.

Are your clients or program participants using automatic banking features to help them better manage their finances? What tips and techniques are they using?