Christmas costs a lot of money. December is the month we Swedes spend the most money and as a result since January is the poorest month. We spend money on everything from Christmas food and Christmas presents to trips to and from family and a lot of mixed things. However, the big cost is usually the Christmas presents, especially if you have children. How do you avoid the debt trap in Christmas?
It’s easy to spend more money than you should at Christmas
It is quite easy to be moved in the Christmas mood and want to have all that Christmas stuff and many Christmas presents under the Christmas tree. Unfortunately, all this is unfortunately quite a few times so that Christmas digs a little good hole in the wallet and it is not so good. You should keep a little extra good order on your finances as Christmas approaches, so that’s why you get some good tips here that will help you avoid overstating your finances.
Plan and budget Christmas
A good way to fix Christmas without any problems with the economy is to start planning Christmas and its costs well in advance. There are many benefits to this. You get good order and find out, you can start saving well in advance and spend money and you also have the opportunity to avoid classic debt traps.
If you start by making a budget that shows about how much you can spend on Christmas and everything that comes with it, you have a reason to start from late. It is never wrong to budget for Christmas – it works much the same as setting a budget for a holiday trip, but with a few other expense items. Instead of air travel, hotel, taxi and restaurant visits etc, you can enter such things as Christmas food and Christmas presents in your budget.
Assume how much you can afford to spend and build on from there
When you think about this you will find out if you need to start saving money for Christmas or if you already have enough money anyway. Saving money is a great way to fix Christmas costs without taking any risks with your own finances. You can then start putting away some money each month for a longer period of time so that you have enough for what you want to buy without having to spend your savings or buy on credit.
If you find that you do not have a lot of money left over to your Christmas budget because you have a little money with money in general, you can save, as I said, but you can also start planning a Christmas in advance, which may be slightly cheaper. You can choose slightly cheaper Christmas gifts and perhaps save on some unnecessary expense. There are some things to save money on if you just want to.
By being out in good time you can also save some money straight away. You can, for example, start looking for Christmas presents early and then, for example, possibly buy things when it is sale or if you visit some kind of outlet or low-cost department store. Even if you are there as early as April or May, you can actually buy a Christmas present already, if you only know that it is still important to give away Christmas.
Avoid borrowing and trading on credit
Many postpone their costs for Christmas by either buying things on installments or by borrowing. Of course, this can sometimes be a perfectly ok solution but unfortunately too often leads to problems. The biggest problem is that you incur costs that you later cannot afford in your monthly budget. Even in cases where you can easily pay off your debts without a problem, it is still usually worse to borrow or trade on credit because it simply becomes more expensive.
Borrowing money also costs money in the form of interest and although it may feel smooth to get a cash deposit now and repay the money later, it is usually not the best idea. It takes some money to take out a loan, even if the interest rate is low. Especially if you choose one of the slightly smaller loans with high interest rates. One must not forget that one should be able to afford to repay the loan plus pay the interest cost every month in the future.
To trade on installment
Shopping on installment is very popular and there are also many shops that offer installment plans, especially for eg electronics and more expensive things. It sounds good but unfortunately it is quite expensive to use such a plan. The effective interest rate (ie the total cost of the loan with both interest and other fees included) becomes quite high for such a credit and this means that the thing you bought on installment becomes quite a lot more expensive overall than it would have been if you bought it cash directly.
Many merchants try to entice their customers with interest-free installment purchases. This often sounds really good and many people are tapping into such an offer. Surely it sounds perfect to be able to buy something for SEK 15,000 now and pay off a little every month for eg one or two years without it costing anything extra?
However, one should know that it is rarely as good as it sounds. Even if the interest rate is zero, other fees may not be considered. It is such as the setup fee and notification fee each month. This means that even if the nominal interest rate is zero, the effective interest rate can be many percent. Thus, it is still a good bit more expensive to buy the product on installment than to buy it directly – even in cases when you are tempted with interest-free.
Even in the few cases that someone actually offers installment without any additional costs, you have to be a little cautious. If the effective interest rate is zero percent, this means that there are no costs in addition to the price of the product, but the thing to keep in mind is that if at one point you would be late with your payment it can be expensive. In these cases, it is conceivable that the free offer will cease to apply and that the bank’s usual terms with high effective interest rates will take over. Then suddenly you do not have a cheap installment purchase but one that costs a lot extra.
Shop for the money you have
The very best way to avoid getting into debt is simply not to incur any debt. By simply paying for things in cash you don’t have to risk that kind of problem. Of course you should not spend all your savings on the Christmas celebration but the more you can pay with money that you actually have the better it is.
The best solution is, as I said before, to start saving money before Christmas so that you have a pot to use for Christmas gifts and other costs. How you choose to do to save money obviously depends on your financial situation. If you have a good income, you can probably put away some each month without making any major changes to your regular budget.
If you have a very tight budget, you may have to pull in other things to be able to get some money over saving. Then look at what your finances look like and what expenses you have. Check if you have any big things you can trim such as insurance, old loans, housing costs, etc. In the next step you can check the costs of food, entertainment, car and transport etc. There is certainly money to save if you just want.
Weigh the advantages against the disadvantages
If you feel that you do not have that much money when Christmas is approaching, it may feel tempting to borrow or buy on installments to manage to buy nice Christmas presents, etc. I clearly understand that you want to celebrate Christmas properly and that many think it is worth spending a little extra money.
Of course, shopping for installments or borrowing money to afford some more expensive things is a way to solve it all. There is nothing to say that you cannot do that – the important thing is just thinking about what this means for the economy in the future. If you want to buy a new TV for the family at Christmas and buy it on installment, you can of course do so, but then you also have to budget for the increased monthly costs that this entails for a year or two in the future.
Count on it to make sure it goes together and that you can afford the extra costs. Utilizing credit in itself is not a bad thing and can be a good way to split up costs that are a little too big, but then you also have to plan so well that you do not get financial problems later because of this. The debt trap is not about borrowing in general but it is about the occasions when you borrow or buy on credit when you can’t really afford it. In addition, when you are unable to pay, it usually only makes you end up with even more worries due to increased costs, etc.