With November racing to a close and Christmas soon upon us, this is as good a time as any to ask: Whatever happened to all those resolutions about being more financially responsible?
They were probably forgotten somewhere around Australia Day, or perhaps derailed by the runaway train of the global financial crisis.
The good news is that it's still not too late to put the financial house in order before being swamped by the holiday season, gift giving, over-indulgence and simple summer indolence. And it's always worth remembering that prevention is better than cure, so a little preparation now can help avoid the dreaded Christmas financial hangover.
In personal finance, just as in managing the economy, the key to success is planning and budgeting – looking ahead to what will be needed and making provisions for how it will be financed. Or something like that.
The biggest single cause of Christmas financial hangover is unplanned gift buying which results in a last-minute rush that in turn somehow substitutes size and expense for thought and suitability: Cripes, it's Christmas eve and I haven't bought anything for the spouse – well, I suppose you can't go wrong with a whole-of-wall flat-screen TV...
Then there's the Christmas present equivalent of the arms race: I've bought Suzie a $100 i-widget, so I'll look pretty mean giving Johnny just that $40 wing nut he wanted, so I better buy him the solid gold wing nut, but that's $130, so to be fair I'll get Suzie a leather i-widget carry bag as well and they're $50, meaning Johnny's still $20 short, so just to be fair I'll have to buy them that all-singing, all-dancing power tool set I've always wanted...
And don't forget the pressure of keeping up with the Joneses: The neighbours are giving their little Kile-Lee and Mephistopheles a pony each and business-class seats to Disneyland. Makes the i-widget and wing nut look pretty lame…don't want Suzie and Johnny to think I don't love 'em...oh well, I wonder if the local Mercedes dealer takes credit cards?
And then the trouble really starts. The first thing on a check-list of whether you're in control of your finances is whether you regularly pay off your credit card in full. If you don't, if you're forever paying the very high interest rate on the vast majority of credit cards, you are living beyond your means and have to make adjustments.
Christmas is peak season for pushing people over the edge from being credit card "transactors" into credit card "revolvers". Transactors use their cards for convenience when buying things and pay them off within the interest-free period. Revolvers keep rolling over the debt and therefore incur those hefty interest rates.
Sometimes we need to borrow, but doing it on a credit card is generally a very expensive way of going about it. Occasionally it can't be avoided – an unforeseen car expense perhaps that throws the budget out of whack for a month or two – but it's plain silly to let the retailing pressure of Christmas get you into financial trouble.
So, we're back at planning and being sensible; agreeing dollar limits for gifts within a family and sticking to those limits. If it's really the thought that counts, there's a lot more thought required in finding a suitable gift on a budget than just spending a pile of money. And this year's i-widget is just next year's wing nut anyway.
