Dealing with the Christmas hangover
The last few weeks of December see the consumer frenzy come to a climax and then a long, painful wait to the next pay cheque, potentially at the end of January. Christmas and the New Year see a spike in consumer credit and the commencement of divorce proceedings, which surely is not a coincidence.
We are notoriously bad at setting budgets and rather too good at spending money impulsively, often characterised as being YOLO purchases, or You Only Live Once. The Money Advice Service published a press release that has put some numbers to the phenomenon.
In the UK, we spend £167Million per day on impulsive purchases with 28%, about 1 in 4 made with credit. Close to one in 10 (7%) or 2.1 million people say their YOLO spending has led them into debt by an average of £293. There are some interesting differences in behaviour between men and women, with full details on the Money Advice Service website, https://www.moneyadviceservice.org.uk/en/corporate/press-release–the-rise-of-yolo-thats-you-only-live-once-living
It does not take too long for debt to become unsupportable, so Christmas and the New Year is a good time for taking stock and trying to develop some better spending habits.
- Pull out 12 months of bank statements and see if there are any spending patterns you don’t understand or direct debits you should have cancelled years ago. (Unused gym memberships are a classic waste of money; ask your bank about any payments you don’t recognise).
- Make sure you are earning more than you spend on average. If your debt is increasing over time, you will only have a limited time to sort it out.
- If you are spending more than you earn, either spend less or earn more! Look to see that you are claiming any benefits you are due and make sure your tax code is right.
- Look to save at least 10% of your income to an account you cannot spend immediately. According to The Money Charity, (http://themoneycharity.org.uk/media/December-2015-Money-Statistics.pdf), the average UK household only saves 4.7% of their post-tax income, which leaves people exposed if something unfortunate happens.
- If your employer has an occupational pension scheme and you are not a member, join it. The matched funding is as near as you will get to free money.
- Interest paid on debt is “dead money”, you are paying for past pleasures, so minimise the cost of any debt you have to have and don’t buy stuff you don’t need. Use personal loans instead of credit cards and authorised overdrafts in preference to penalty rates.
Everyone has a few guilty money secrets; mine was buying car magazines in newsagents. Once I established that I was buying 9 from 12 months of a magazine, it made more sense to buy on subscription, save 30-40%, have them delivered to my home and avoid temptation by not going in newsagents! If your favourite coffee house has a loyalty card, use it; plan your spending to get the most benefit from the least money – trying to deny yourself the odd treat does not work long term unless you have the staying power and motivation to see things through.
Contact me with queries
If anyone is looking for general advice, then please write in to the blog and I would be happy to help with anonymous advice posted here. Alternatively, please call us on 0116 253 5600 and ask to speak to an IFA, (Independent Financial Adviser), for a no-obligation discussion.
If you know you need formal advice, have a look at http://bankfield.net, or ask around for a recommendation, it might even be me.