As we go into December, the stories focus on how much we’ll spend on Christmas.
Looming over us this year are several factors that will probably make it a subdued affair. But that’s a good thing.
While it’s easy to focus on the rate rise in November, putting a pre-Christmas dampener on spending by raising mortgage rates, there are other broader matters to look at.
One of the major ones is that we’ve just been through a Global Financial Crisis. While Australia weathered this very well in terms of unemployment and economic activity, European economies are still feeling the effects and the United States has just emerged from recession.
So Australia dodged a big bullet. The price to pay for the fiscal stimulus that got us through the GFC is that the Reserve Bank has to lift rates to stop that glut of money from the government triggering inflation, which would hurt us all.
But it has also made me think about Christmas and the fact that many households get themselves into bad financial shape by spending too much and then borrowing to hide this mistake.
There are three basic ways to do your Christmas shopping: you can use a credit card, which costs 10 to 15 percent more than a variable mortgage rate. Or you can use store cards and store finance which costs as much as 20 percent more than a variable mortgage rate.
These ways will eat away at your finances months and years after the Christmas you used them for.
Or you can do your shopping the best and cheapest way: use cash.
I suggest that the best way to get through Christmas is to have a cash budget, make a list and stick to your plan.
And don’t get carried away: Christmas is about giving, not about showing how much money you can spend.
And have a look at the shops early. Many retailers are having pre-Christmas sales, so if you get in early you not only have the selection but you will find bargains. The worst way is to do your shopping at the last minute when you are forced to take whatever is on the shelves and at the full price.
Also, if you start early you can spread the shopping over several trips and several weeks, preserving your cash flow.
Tightening our belts may not be a bad thing – it saves financial pain and makes us focus on what Christmas really is, which is a time to be with family and loved ones and a time to give thanks.
Mostly, it’s a time to help those who need it.
If a small-spending Christmas helps us get back to these ideas, then it can’t be all bad.
Mark Bouris is the Executive Chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting & tax and insurance.
Email Mark on mark.neos@ybr.com.au with any queries you may have or check www.ybr.com.au for your nearest branch.