Bouncing Back from the "Holiday Debt Hangover"
Now that the holidays have come and gone, you may be left with more than just gifts: that heavy burden of holiday debt hanging over you and your bank account. If you are like most consumers, you more than likely spent money that you didn’t have during this season. According to a survey from the American Research Group, Inc, shoppers around the country plan to spend an average of $929 on gifts this holiday season, which exceeded lasts year’s survey by $47. If you find yourself suffering from a post-holiday financial slump, here are a few things you can do to overcome your holiday spending hangover. Using these tips can help whether you are a sole proprietor or a larger corporation. Accounting Girl is more than happy to use her accounting superpowers to help you get through the “Holiday Debt Hangover!”
The first step in relieving yourself of this financial burden is to assess the damage that has been done. Review all of your spending; look at how much you charged to your credit cards, how much you spent from savings and the categories you were spending on, such as gifts, food and entertainment. If you charged your holiday purchases on multiple cards, create a spreadsheet with the balances of each card; this will make it much easier for you to keep track of the process. Lying to yourself only hurts you, so make sure to be honest. If you withdrew money from your savings account, make sure to calculate that into the total as well. If you aren’t up for the task or you have too much to gather and not enough time, Accounting Girl is passionate about the tasks that make most business owners cringe.
Paying off balances
Now that you have a better understanding of your debt, it’s time to determine how much you can allocate from your budget to pay off your balance. If you used multiple credit cards for your holiday shopping, determine which card has the highest interest rate and pay down that balance the fastest. Having a high balance on your credit cards can have a negative effect on your credit; you want to aim to pay off your credit card debt in ninety days or less. Paying the minimum balance can affect your debt as well: paying only the minimum creates the possibility that the debt is still around come next Christmas, which may get in the way of planned purchases or activities.
Evaluate your daily spending and try to cut back in places that are unnecessary. If you are spending $60 a month at the local coffee shop for your daily double mocha lattes, consider only splurging once a week and making your morning brew at home. One way to easily determine areas where you may be able to cut cost is to evaluate which expenses are actual needs and which are wants and “nice to haves”. This can add a whole new perspective to your budgeting efforts and give you the extra push you need to cut those unnecessary expenses.
Commit to your plan
Now that you have your balances added up and a budget in place, it is time to commit and follow through with your plan. Whether you opt to use budgeting software, an Excel spreadsheet, or the envelope system, choose a system that feels the most intuitive and understandable to you. The easier the software is for you to use, the more likely you are to use it and stick with your budget. Of course, we recommend using Quickbooks Online and the Profit First method (ask us about it!).
It’ll take some dedication on your part, but the reward is well worth the effort. If you have a partner, work together to hold each other accountable for any spending oversights. If one of you overspends, set rules that the guilty party has to contribute more to that month’s savings fund, a sort of quarter-in-a-jar method with a twist. It’s much easier to stick to a budget when you’re working at it together and you can make it more of a competition to keep it interesting. If you’re a sole proprietor, consider creating a support group among your friends with a reward for reaching your budgeting goals. Whether it’s a vacation fund or a night on the town, the extra incentive will help keep your eyes focused on the goal and make it fun in the process.
This is a good time to start thinking ahead even though you may still be worried about all the spending you just did. It's important to understand what your budget is and how you can help yourself avoid another “Holiday Debt Hangover” next year. Now that you have already established what you spent this year, use that total and divide by ten. This will show you what you need to save each month from January to October, so you have enough for when the next holiday season starts in November.
If your monthly amount is too high, create a strategy to have a more affordable holiday season next year.
It may seem daunting to bounce back from a blown budget, especially during the holidays, but it is possible with commitment and focus. With the new year comes a new opportunity to wipe the slate clean and start fresh. Being prepared for the next holiday season will eliminate unwanted stress and allow you to enjoy every bit of the good stuff! Let Accounting Girl help you let go of those unwanted financial stresses.