Paying off Christmas Debt

 

Tis the season to start paying….fa la la la la, la la la la!

According to CreditDonkey.com, 37% of Americans (in 2013) used credit cards to pay for Christmas gifts.  (I had a little trouble finding figures for 2014, and I’m sure 2015 isn’t out yet.  But I can imagine it wasn’t much lower in 2015.)

A lot of folks do not save for their holiday spending.  They put it on credit.  Or, if they do save, they put on credit whatever they spend over and above what they had saved.  And come January, those bills start rolling in.

The average shopper spends $882 on Christmas gifts.  (AmericanResearchGroup.com).  I can assure you, bigger families spend more.  And this is just on gifts.  There are hidden costs of Christmas as well, such as travel, food, decorations, clothing, beauty costs (nail and hair salons), electrical costs (someone has to pay for all those lights!), heating costs, as it is starting to get colder, and charitable giving costs.  November and December are very expensive months for most Americans.  And a lot of time, that goes on the credit card.

So what do you do if you have credit card bills coming in now?

Pay them, pay them, pay them!  Hopefully you didn’t have a balance before.  Unfortunately, seven percent of consumers are still paying off holiday debt from 2014.  Now they add 2015 to that, and their credit card balances just keep growing.  We don’t want to nurture and protect these babies – we want to cut them off!

And here’s how:

  1.  Pay more than the minimum balance.  If you can’t pay each credit card balance off in full, pay more than the minimum balance on each.  If you pay just the minimum, you will be paying those credit cards for years to come.  The interest will kill you.  Say you spent the average $882 for Christmas and you charged it.  If you paid only the minimum, for a whole year, never actually paying that balance off, your gifts will cost you an extra $127 (in interest) by December 2016.  (check out wisebread.com)  How many gifts would that extra $127 bought for your friends or family?  Maybe you could have treated yourself to a relaxing spa with that money.  Instead, you handed it over to the credit card company.
  2. Use the snowball effect.  If you can afford to, put a lot more money towards one credit card than the rest.  Say you have three cards with a balance on them.  One has a balance of three hundred, (minimum payment of $10) one of five hundred, (minimum payment of $20) and one of $1,000 (minimum payment of $80).  Pay more than the minimums on all of them, if possible, but on the $300 one, pay a lot more than the minimum.  Put everything extra that you can afford to on that $300 one.  Say the minimum payment is ten bucks. Put $80 on it, (or more!) if you can.  You will pay it off quickly.  Then, take that $80 and add it to the $20 you are paying on the $500 credit card, giving you a total payment of $100.  When that card is paid off, take that $100 and add it to the $80 you are paying on the $1,000 card, giving you a total of $180 every month.  Your payment snowballs as it pays each card off.  You don’t fork over any more money each month.  You simply take what you were paying on one card and add it to another, paying off your debt faster, building momentum with each payment.  Very much like a snowball.  🙂
  3. Put any “windfalls” towards the debt.  Did you receive any unexpected money?  Someone give you a gift?  Or maybe you received a large refund of some type.  Maybe something finally sold that you had on the market for a while.  Or, maybe you won the lottery.  🙂  Don’t blow all the money, telling yourself that you “deserve” a break, something fun for once.  No you don’t!  You deserve to live debt free!!  Take that money and put it on your credit cards.
  4. Do not add to the debt.  If you have a balance, and you cannot pay your whole balance off every month, then stop using your credit cards.  If you need your credit card for every day purchases, such as groceries, than somewhere within your budget, you are living outside of your means.  You have a serious issue that needs addressing.  If you are using your credit card for shopping sprees, stop!!  You don’t need those items. Wait until you can afford to pay cash for them.  You will never pay off your credit card if you keep adding to it.
  5. Contact the credit company to negotiate a lower interest rate.  If you still have last year’s Christmas on your card, and now you have added this year’s, then it’s time to take some serious action.  You need to pay that baby off.  Sometimes you can contact the credit card company and negotiate a lower interest rate, allowing more of your payment to go to the actual balance and less of your hard earned cash going to the credit card company itself.  Be careful, however, if they offer you a lower pay off amount.  Taking that lower payoff amount will get you out of debt sooner, but it also hurts your credit score.

(Photo from blog.gulpfish.com)

21 Tips for Saving Money

Here is a list of 21 ideas to get you started on saving money.  Use some of these tricks to save a couple of bucks and then take those couple of bucks and tuck them in to savings!  Before you know it, you have a nice little nest egg started.  🙂

Remember, start small.  It is always about building the habit, not winning the race for the day.  If you build the habit, you will continue in the long run.  If you start out with full cannons blaring, giving up so much that you are miserable, you won’t stick with it.  Pick something you can live with, and as you adjust, cut out more.

And always tuck that money away!

  1. Give up the Coffee – if you buy coffee from say, Star Bucks or Caribou, give it up. Tuck the money you save in to savings.  Too hard?  Give it up once a week.  Always always start small!
  2. Give up the pop/snacks – Do you buy a pop every time you stop for gas?  Pick up a snack from the vending machine?  Keep a stash from home in your trunk or backseat, and tuck that money in to savings instead.
  3. Bring a sack lunch – Do you eat out for lunch?  Bring something from home instead.
  4. Quit smoking – even cutting back can save you money.
  5. Curb the alcohol – do you always have a couple of drinks with your meal?  Cut back or have water instead.
  6. Turn down the heat – even if it’s just during the day while you are gone, or if you leave for the weekend.  Or, if you have your house set at 73, can you kick it down to 69 and put a sweater on?
  7. Turn off lights/appliances when you are not using them.  Unplug items.  Even when it is off it still sucks electricity.
  8. Recycle – and if you live in the country, get a burning barrel.  It cuts down on waste and saves you money.
  9. Buy generic – some food items taste just as good if they are a brand label.  Experiment.  Some items there is a noticeable difference, and some are just fine – even better!
  10. Use coupons
  11. Run the washing machine or dishwasher only when it is a full load
  12. Walk or ride a bike whenever possible instead of driving
  13. Watch movies at home on T.V., cable, satellite, Netflix, etc. rather than going out to the theater
  14. Find free activities to do, such as community education classes, the library, bike riding, sledding, going for walks, hiking, having a picnic, playing at the park – be creative!
  15. Buy clothing on sale or clearance.  Some cities have very nice second hand stores as well.
  16. Shop your local garage sales
  17. Buy items only if you need them – not because you have a coupon, they are on sale, or because it is just so cute!!
  18. Look for ways to trim your bills.  Do you watch TV a lot, and really need all of those channels, or can you cut back?  Do you use all the data on your phone or will a smaller package do?
  19. Buy in bulk.  But again, buy only if it is something you would buy anyway and if it really is cheaper.  Check the label – sometimes the unit price isn’t all that cheaper.
  20. Try making your own soaps and detergents.  It is cheaper and some recipes work just as good as store brands.
  21. If you are a crafty person, make your own gifts and cards.  Homemade gifts mean more, are more thoughtful, and are the ‘thing to do’ right now!

Pay Yourself First

Has anyone ever told you to “pay yourself first”? “Pay yourself first” means you put a little money in to savings for yourself before paying any of your bills or buying any household necessities. A brilliant idea, but some folks might not take ‘hold of it because they may feel it is not very practical, especially if they are sinking in debt.

However, you do need to set something aside for emergencies. It is very much necessary to do that, if you want to get out of debt and stop relying on plastic to get you through financial crisis. But don’t go overboard and ignore bills so that you can build up your savings. That will create a financial crisis instead of avoiding one!

In the “pay yourself first” model, they stress that you need to set aside something, anything, before paying any other bills. Even if it’s just five dollars. One dollar. Doesn’t matter. Just start saving.

Most people have a basic idea of how much money they make and what their expenses are. We are going to dive deeper later on the expense side of the equation. But for now, think about your rough estimate of expenses. How much money do you think you realistically can tuck away for a rainy day? $100 a month? $50? If you can do more, fantastic! If $50 is hard for you, how about $10? Feel like you have absolutely no money to tuck away in to savings? Can you do a buck? One dollar? Just to start getting in the habit of saving? That’s all it takes. (We will talk about where to find extra money in your budget another day).

Do you have a savings account already? If so, great! If not, you might want to think about opening one. You can open a savings account at any bank or financial institution. Credit Unions are a great way to start as well. If you have a tough time getting in to a bank, due to past history, or if you are not at a point where you can trust a financial institution, then just start tucking money away somewhere at your house. Somewhere hard to reach; especially if you have a habit of digging in to your savings when you run short.

Let’s talk about the nuts and bolts of savings. There are a few different layers to savings. You have your “put and take account”, your “emergency savings account” and your “savings” account. Each layer, each account, has a different purpose.

  • The Put and Take Account – this one is exactly what it sounds like. You put money in with the explicit purpose of taking it back out again. This account is used to fund bills that you don’t pay monthly, such as insurance, taxes and heating expenses, i.e., fuel or propane. It should also be used for expenses that come around once a year, such as birthdays, Christmas, or a high school graduation. This is how it works:

If you pay your insurance every six months, and it is $600, then every month you deposit $100 in to the “put and take” account.  At the end of six months, you have enough to pay your bill.  If you are saving for Christmas, and you typically spend $1,200 on Christmas, then every month you deposit $100 in to your “put and take” account.  Sweet, right? Easy.  This way, you aren’t skipping another bill to pay that insurance, or putting your Christmas on credit cards.  I find that a separate checking account from the one you use on a daily basis works well for a “put and take” account. Or, if you don’t use checking accounts, you can simply use an envelope, and tuck it away somewhere that is hard to get to.

  • Emergency Savings – This one is pretty self-explanatory. An emergency savings is used to save for emergencies. If you struggle with debt, this one is a ‘must have’. Why? Because when the furnace goes out and you need to replace it, you will have the money set aside, rather than rely on credit.

To start out, set aside what you can reasonably afford. Don’t scrimp on another bill because you are going to become a savings warrior. Pay your other bills, put your monthly amounts in your put and take account, and set aside a reasonable amount for your emergency savings. If you can only afford $5, great! Put $5 aside. If you can do more, fantastic! The point right now is to start learning to save. That is the goal. To make saving a regular habit for you. The point is not to kill yourself trying to do it.

Budgets should not be too painful. Self-sacrificing, occasionally. 😉 But it needs to be liveable. If you create a budget that is unrealistic, if you set up a savings plan that is unrealistic, not only are you going to hate the whole process, but you won’t stick to it. And then it is so painful that you will never try again. So let’s make this easy for now. Put in a small amount of money that you can live without pretty easily, and we will talk later about how to find ways to increase that amount.

I find that another checking account works well for this layer of savings as well. Actually, I personally use the same checking account for my “put and take” account as I do my emergency savings. I just know in my own head how much I have in my “put and take” account and how much is for emergencies. I like the check book though because then I can write out checks directly from this account, or use a debit card.   No transferring required. But a savings account works beautifully too. It’s all personal preference. (A manila envelope tucked away safely at home works too, but when you start setting aside this much money, fire or theft is a risk…..)

  • Savings – This is the final layer of savings, and maybe, the “real” layer. This is a savings account for the long haul. You do not take out of this one. Ever. Until you retire. Or buy a house. Or any long, long term goal you may have.

I would advise that you do not even start saving for long-term goals (retirement, new house, lake house, new car, boat, motorcycle, what-have-you) until you have mastered the “put and take” account and the emergency savings account. Until saving has become a regular habit, don’t worry about this layer of savings.

Also, I would suggest you work on getting out of debt before you start tucking away money for a new boat. 😉 It just seems practical. But once you have reached financial stability, start tucking money away in an actual savings account. At a bank. Where you can gain a tish bit of interest. Where it’s very very hard to touch. In fact, some banks have penalties if you take money out of it too often in a certain time period. So it’s a good place to be.

And again, start small if you need to. The idea is to set up the habit. Once you save on a regular basis, and are feeling financially comfortable, or at least you are to a point where you can handle a little self-sacrificing, then increase your amount. And continue to do so over the years, as you are able.

 

And that’s it! Saving in a nutshell.  It’s easier than most people think. And almost painless. If you struggle with debt, or you struggle with making ends meet; if paying your bills is hard for you, and you don’t see how you can possibly start saving, just start small. That’s all it takes. We don’t need to save a million bucks here. We just need to start the habit. That is the goal.

We will talk more on where to find extra money to save another day. You’d be surprised at how you can tuck money away!

 

~”Roughly a third of American adults don’t have any emergency savings, meaning that over 72 million people have no cushion to fall back on if they lose a job or have to deal with another crisis, according to a survey released March 31, 2015 by NeighborWorks America, a national non-profit that supports communities.

Ideally, Americans should be setting aside 15% of their gross income to prepare for emergencies, as well as for retirement and other goals, according to financial experts.

When it came to financial priorities, only 1% of adults said shoring up an emergency fund was a critical financial goal vs. 5% who agreed a year ago.”

– from an article taken from  USA Today

 

Ways to Bring in a Little Extra Money

So you have been following along the financial series here at Making Mommas.  Great!  We will be tackling the much dreaded budget very soon.  But if you already know that you don’t bring in enough income to cover your expenses, here is a list of some things you could try, to bring in a few extra dollars.  Pick a few that you think would work well with your personality and lifestyle, and give them a try.

  1. Moonlight – pick up a part-time or temporary job that works around your “day job’s” work schedule, such as weekends or evenings.
  2. Sell Stuff – everyone has stuff around their house that they no longer use.  Put it on the great world wide web, bring it to a local consignment store, pawn shop or auction, list it in the paper/radio ads, or have a garage sale.
  3. Baby Sit – it’s so easy to fall back on the way so many of us made money in the first place.  Do some babysitting for folks who have a hard time finding daycare for those odd hours.  Maybe they work an evening job or weekend job, and there are no daycares for those hours.  Offer your services.
  4. Start Your Own Business – think of any skills you may have.  How can you use them to do a little contracting work on the side?  Can you landscape?  Mow lawns?  Offer your services as a decorator or party planner?  Clean houses?  Tutor?  Write grants?  Proofread?
  5. Start a Blog – I have been told you can make money blogging.  I haven’t seen any yet, but give it a try!  It’s fun, if nothing else.  🙂
  6. Refunding – I know people who have done this.  My mother-in-law did this and took her kids to California with the money she made – twice!  I’m not sure of all the in’s and out’s of it, but basically how it works is companies offer refunds of their product if you send in the UPC from the package and the sales receipt.  If you do this enough, you can end up with quite a little stash.
  7. Online Surveys – I have been told you can make extra money online by taking surveys and answering quizzes.  Again, I’ve never tried this.  So be careful proceeding.  There are a lot of scams out there as well, and I wouldn’t want you to get caught up in one.
  8. Bring in Scrap Metal – Do you have a lot of old junk laying out in the yard?  If it’s made of metal, find a local salvage yard and see if they will take it. They pay you to take it off of your hands.  🙂  Do this with any old copper wiring you may have laying around as well.
  9. Sell a Craft –  Are you a crafty person? Then sell what you make!  Set up at local craft fairs or online.
  10. Sell your baked goods – Can you bake?  Then sell what you make!  Set up at a local craft fair or Farmer’s Market.
  11. Gardening – Can you offer fresh fruits and vegetables in the fall?  Or canned goods? Again, set up at a local craft fair or Farmer’s Market.
  12. YOU PICK – Do you live in the country?  Do you have a lot of extra space? Start a YOU PICK business.  You pick strawberries, blueberries, raspberries, corn, pumpkins, asparagus.  Whatever works.
  13. Seasonal Fun – can you offer a corn maze? Pumpkin Patch? A Haunted Woods?  Campfires for those city folks?  Use your imagination, and your space, to offer something to those who don’t experience the joys of living in the country on a daily basis.
  14. Rent out your home – Do you travel a lot for business?  Then rent out your home to others who do as well.  Many people are preferring to stay in a fully furnished house rather than a hotel these days.  Or, if you have a lake place/vacation home, offer up time shares or rent that out when you aren’t around.  Or, if you have extra space in your house, take in a roommate.
  15. House Sit – Live in someone else’s home while they are gone, to care for it.  This gig often includes caring for their pets.

How Much EXTRA Money Do You Really Make?

So you figured out how much money you are actually making with your regular job. Great! Let’s say you bring home $1,000 every two weeks. Wonderful. I like nice, round numbers to work with. 😉

Now what about all these little odd and ends that come in to the household every now and then? You’ve gathered them all up. Now what do you do with them?

Well, let’s say you consistently get a child support check from your ex every month. He’s supposed to pay you $500 a month. Once in a blue moon, he hits the mark. But sometimes he pays you $300, sometimes he pays you $425, sometimes $250. It varies. What do you do then?

Well, there’s two ways you can handle this.

First, you could average out the last six months of payments (add them all up and divide by six). So let’s say for the last six months, you received $500, $400, $450, $325, $350 and $500. That adds up to $2,525. Divide that by six and you get $420.83. On average, that is what you receive in child support and what you can figure in to your budget.

But what about those months when he gives you $325 or $350? If you budget $420, you’ll fall short those months. So what I like to do is go with the least amount he’s been known to give you. I would put an income of $325 in your budget. Every month. Because that is the smallest check he has ever given you and you know you can count on at least that much. Anything above that would be bonus income for you.

I would do this with any extra income that comes in on a regular basis. Let’s say you get a mileage reimbursement from work every month. You can average that out over the last six months, and go with that average for your budget. Or you can use the lowest amount you have ever received. Or you could not include it at all, and it would come as discretionary income for you to use as you please.

Any extra income you have, that comes in on a regular basis, do this with. If you have income that you sometimes get, but not always, don’t count that. That will be discretionary income, and we will talk about that later. Discretionary income could be things like dividend checks, credit card “cash back” bonuses, Christmas bonuses, insurance premium reimbursements, garage sale profits, etc.

What if you receive government assistance, such as food benefits, cash assistance, medical assistance, or heat assistance? Well, the heat assistance goes directly to your vendor, so let’s not include that. The medical assistance also goes directly to the hospitals/clinics, so we won’t count that either. Unless you receive an insurance premium reimbursement check. We would want to count that. The food benefits you could count as income, or you could just lower your food expenses by that amount. We can talk more about how to do that when we talk about expenses. Cash assistance, since it is actual money you receive though, should be counted in the income side of the budget.

So let’s say you receive $1,000 from work, $325 from your ex and $400 in food benefits. This is your income. You make $1,725 a month. That is what you bring home and can use for your expenses. Or, how I would do it is leave the $400 in food benefits out and just count the $1,000 and the $325, for a total of $1,325. It’ easier to work with, and then I’d just lower my food expenses by $400 every month. (Say you typically spend $800 on groceries. I’d only add $400 of that in to my budget because I know food benefits covers the other $400).

It’s a lot of work to figure out your monthly income, isn’t it? But congrats! You got it! Now let’s meet back here to figure out what to do next!

And for those of you who are self-employed, we will talk about that next time as well.

How Much Money Do You Really Make?

So you’ve done the work – you’ve figured out every source of income you have on a regular, monthly basis.  Great!  (If you haven’t, please read “Know Where Your Money Comes From” before continuing.) 

The next step is to know how much you make.  You might be rolling your eyes at me right now, because most people have a pretty good grasp on how much they make.  You get paid $20 an hour right?  So you make $800 a week, right?  Well, sort of.  You wouldn’t want to budget yourself on $800 a week though.

What you need to do is study your paystub.  Take a real good look at it.  How much do you have coming out for taxes? For social security? Retirement?  Insurance?  Flex benefits, if you have them?  We can have so many things coming out of our paycheck before we ever even receive that paycheck, and it can greatly reduce the amount we are bringing home.  That amount, that you are bringing home, is called your Net Income.  The $800 that you make, before they take all of that stuff out, is called your Gross Income.

If you are having trouble making ends meet, you might want to check on what is coming out of your paycheck.  Sometimes that can be changed, raising your net income.  Take a look at what you are claiming for taxes.  Maybe you are claiming too much, and having too much money taken out of your paycheck up front.  You could lower that, and have more Net Income.

Of course, on the flip side of that, if you lower it too far, you could pay more taxes at the end of the year.  That’s not much fun either.  Or, if you claim more than you need to right now, you could get a nice tax refund in April.  Claiming more is a nice option for those who struggle to put money in to savings.  I look at it as money that is being saved for you during the year, by Uncle Sam, and will be given to you in April.  But it is always a gamble, because you never really know if you will have to pay in, break even, or get a refund, until the year is done.

Regardless, check on what you are claiming, and see if you need to adjust this.

Also check on what is coming out for health insurance.  Some insurance you just have to have. There is no way to get out of it.  And some insurances you don’t need.  Do you have the regular company insurance, plus three Aflac Policies?  Do you need all of those Aflac Policies?  If not, get rid of them.

Could you possibly qualify for medical assistance or a tax break on insurance through the government?  Have you applied, to see?  If your insurance premium is eating up too much of your paycheck, maybe you want to check it out.  The first place to start is at a county social services office or your local community action agency.  If you live in Minnesota, go to www.mnsure.org.

Check out what is coming out for Flex Benefits, if you have them, and retirement.  Is it more than you can afford?  Do you have a lot of flex being taken out of your paycheck, and then you never use it, so you lose it?  If so, lower that amount next time around.  How about your retirement?  It is necessary to invest in your future.  But you don’t want to sell yourself short right now either.  Find a number you can comfortably live with right now.  And again, if you find you have a lot of money to play with at the end of the month, maybe you want to start sinking more in to your retirement funds.

After taking a look at what is coming out of your paycheck every week, two weeks, or month, take a look at how many hours you work.  Do you regularly work a full 40 hour week, if that is your schedule?  Or do you consistently fall short?  I have worked with many people who have budgeted themselves for 40 hours, but their budget never quite worked for them because, they realized, they consistently fell short of 40 hours during the week.  That makes a huge difference on how much money you actually bring home.

Take a look at the last two months’ worth of paystubs.  Did you consistently average 40 hours?  And if you fell short, did you get vacation pay or sick pay for those hours, or do you lose money?  For the purposes of your budget, come up with an average of how many hours you have worked in the last two months.

You do some homework. Study your paycheck, figure out what you are really bringing home every month, and make any necessary changes. And we will meet here again to talk about any extra income you may bring in.

Know Where Your Money Comes From

So you want to handle your finances a bit better. Great! This is a wonderful place to start. I have A LOT of first hand experience with almost every financial issue you can think of. Well, except for “what to do if you have too much money”. That is not something I have experienced as of yet! But anything else….I’m your woman!

I also taught the Four Cornerstones of Financial Literacy in my past life. 😉 A wonderful curriculum, and if you are looking in to taking a class, I’d start with your local community action agency.

The first step towards better money management is knowing where your money comes from.

This may sound easy, but it is often times more than just a regular income from a day job. You need to consider all of the income you bring to the household, not just your wages from your nine to fiver. Do you work a second job? Moonlight? Are you laid off for part of the year and bring in unemployment? Do you babysit? Mow lawns? Have a yearly garage sale? Refund? Have your own business?

Do you receive disability? Social Security? Food Benefits? Fuel Assistance? Financial Assistance? These types of benefits also need to be considered as income, since they do cover some of your expenses. How about dividend checks? Any odd ball income you have coming in on a regular basis that can be counted on for quite some time needs to be considered.

Other income you may receive that does not come in regularly would not be considered in your monthly income. For example, I just sold my house. I would not consider the profit I made on my house as part of my monthly income. Sometimes I receive AFLAC checks or refunds from somewhere. They also would not be considered as part of my monthly income, because I do not receive them on a regular basis.

What about a Christmas Bonus, you ask? That one is iffy. If it comes every year, without fail, you could possibly rely on it and include it. I would only consider it as income around the time you receive it though, because otherwise you’d have to break it down to what you would receive on a monthly basis and that would really be hard to work with. Better yet, though, is to not consider it as income at all. I would call it a “Windfall”.

A “Windfall” is that “oh look at what just came in the mail!” money you get as a bonus. That is money not included in your budget. That is money you can’t rely on, so you don’t want to put it towards any expenses. That is lucky money that, if you have no debt, and all your expenses are covered, you get to play with. 😉 That is where I would put the Christmas Bonus. If you ever want to know why, just ask the Griswolds!

Once you have a list of all of your regular income, come on back, for what to do next. 🙂