Gifts for family and friends, Christmas cards, food and parties, there always seems to be something more to spend money on during the Christmas season. According to the National Retail Federation, the average American spends about $1,000 on Christmas each year, about 71% of that goes to buy gifts. For the last decade, U.S. Christmas spending has increased year-over-year. If you’re not managing your cashflow during the holiday spending spree, you could wind up in a Christmas cash flow crunch.
While cash crunch is usually used in reference to a business, we can experience the same thing in our own personal spending. When there is more money going out than is coming in you get a cash flow crunch. The best way to avoid this is to have a strategy in place before you feel the crunch. A big part of that is creating a budget or a spending plan. It’s important to tell your money what to do and assign it to a particular task. For example: X amount of dollars goes to paying yourself first in terms of savings and/or investing, then an amount for specific bills, while other parts of your income can be assigned to gifts or entertainment.
Remember that a budget is only part of a financial strategy. Your budget is like a roadmap for your money, an easy way to know when and when not to spend. To truly avoid the cash flow crunch you need more. Start by setting clear goals for what you want to achieve with your money. Set a deadline for those goals and decide what choices need to be made to succeed. An effective strategy will position you on the playing field in a way that you can win. It’s all about looking to the future and generating results.
Your strategy will be unique to you and your goals, but some points to think about include things like reducing your spending, deciding what parts of your spending lifestyle are needs, and which can be paused or done away with. Embrace the age-old question- what are my needs vs. my wants? This is a very emotional question, which makes money decisions emotional. When we control our emotions about money, we can control our money better. The answers to the needs vs. wants questions will be different for everyone. What may be practical to one family may seem lavish to another. It’s important not to judge. However, we all have the same basic needs: Food, Shelter, and Clothing. Beyond that anything else might be up for discussion.
The most important part of your strategy needs to be taking action. You can plan and strategize until you’re blue in the face, but unless you act and put that plan into motion, you will not see any results. You may never achieve your goals, and you may never win that end prize of a comfortable retirement. This Christmas avoid the cash flow crunch and give yourself the gift of financial freedom.
photo: Heidi Fin