Recovering From Holiday Spending: 3 Steps

happy-holidays

Many people overspend during the holidays, and then when the first of the year rolls around, they make a resolution to save money. Here are three steps to break the cycle.

Past

Look at what you spent last year. This part is what known as a descriptive budget, as you are describing how you spend. Do your best to categorize expenditures and see where your money is truly going. The numbers may surprise you, especially when you see how much of your money goes toward loan interest and late fees.

Present

In this step, you create your prescriptive budget. The descriptive budget was about seeing where your money goes; this one is about deciding where your money goes. Maybe you would like to spend less eating out and would prefer to redirect a portion of that money into a travel fund. If you have run up large bills, you want to pay them off as soon as possible. Companies like Simple Path Financial specialize in personal loans with reasonable rates. You might not want to close high-interest credit card accounts — doing so may harm your credit score — but definitely hide the cards and quit using them.

Future

Creating a prescriptive budget was a crucial step, but it isn’t the end; the next step involves setting yourself up to stick to the budget. The key is automation. Choose three financial goals, and set up a savings account for each one. Arrange for small amounts of money to be automatically transferred from your debit account each week or month into each savings account. When you are ready to make a large purchase, you will have the cash to fund it. For goals that are several months away, choose a certificate of deposit; the money can be withdrawn early, but penalties will discourage you from rerouting the funds frivolously. Doing all this requires a bit of time and effort; if you are technologically savvy, an app may help. If you stick to it, the victory will be worth the hassle.

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