So what does this have to do with financial advice? Here comes the analogy.
Over the next 30 days, many of us will do our holiday shopping in malls, local stores and online. Sales on Cyber Monday alone are expected to easily top $1 billion. Even with 13.9 million Americans out of work, retail sales appear poised for a strong rebound this holiday season.
My message? Just like that additional helping of turkey and mashed potatoes, that little extra whipped cream on the pumpkin pie, or “just one more cookie”, our holiday purchases will create a heavy weight on our financial picture. When we eat too much, I suppose we can always argue that if we simply double up on our exercise routine and watch our eating habits, those extra pounds might just fade away over the next few months. And for some, that could well be true.
But the eating versus buying analogy starts to break down at this point. When we’re in a shopping frenzy, the only exercise we get other than walking the mall is in exercising our credit cards. Next year can we simply work more hours and make twice as much money to pay off the additional credit card debt? It’s not that easy. And if our additional purchases were made on a high interest rate card, we’ll be paying that debt not over just a few months, but over many years.
Most sources peg the average APR for U.S. credit card debt at approximately 15%. Think about it. With a $1,000 balance at 15%, paying the minimum payment will take us 6.7 years to extinguish that debt. That’s a lot of financial jogging, sit-ups and push-ups!
So how can we avoid that bloated post-holiday financial picture? The answer, of course, is as plain as the nose on our face – pay by cash or debit card whenever possible, and live within our means. Save the credit cards for emergencies and pay off any balance monthly.
As always, I am a master of stating the obvious. End of lecture.
Of course, if you do have a little cash in your pocket this holiday season, enjoy the gift of giving to someone less fortunate via some of the great organizations that are so desperate in these difficult economic times. Trust me – you won’t feel bloated.