Tips to curb overspending during Christmas

WRITTEN BY: Samantha Matthew - Glacier Research

Christmas is a time full of excitement and cheer … we call it the season of giving but the flip side of this is that we often forget that behind all this “giving” lies a lot of excessive spending. The holiday spirit is sometimes so contagious that it can turn even the most frugal buyer into a shopaholic! There are people who plan and budget for the festive season well in advance but the plain truth is that such individuals are a bit of a rarity, with the bulk of us being swept up in Christmas shopping-meltdown frenzy, chasing bargains, trying to get the last of our gift-buying out of the way. By the 24th of December we are physically (and financially) exhausted, wondering what we spent our money on and how we are going to make it until that much awaited January salary arrives.

Irrespective of the level of income you are earning the tendency to overspend is there and is fuelled by the media, seemingly bargain buys and outside social pressures to spend. Everyone would like to enjoy the festive season and the holiday spirit but the bills at the end of it (worst still if you have bought on credit) is something that we would all like to avoid. So in the spirit of spreading not only the good tidings during this year’s festive season, let us also mention a few helpful ways to avoid being swept away by all the cheer straight into a mountain of holiday debt.

Start saving

The best and most helpful piece of advice that can be given with regards to Christmas spending is start saving as soon as possible. Although simply saving for the year end shopping may seem pointless when you could rather be investing in something long term, the simple reality is that often Christmas spending gets so out of control that if you don’t plan and save ahead of time you could find yourself paying off debt accumulated over December for rest of the year to come.

Start your shopping for Christmas earlier

Another useful tip is to start shopping for Christmas as soon as possible. This allows you to not only shop around and compare prices, but also avoids that fever of last minute buying which often leads to unnecessary spending. Be conscious that retailers are aware of the fact that along with tidings of goodwill, the festive season also brings with it the tendency to splurge; hence they employ a number of strategies to fuel this. For example have you noticed that over the festive season shops open early and close late; how we are constantly bombarded with advertisements of sales and bargains; and as soon as we hit December they start a daily countdown? All of this is done to create a sense of excitement and urgency and is something that we have grown accustomed to during Christmas – to the point where many of us feed off this energy and sometimes use it as a further excuse to spend. By being aware of the atmosphere that is created, starting early and not getting caught in the rush and panic of last minute shopping, we can actually have a much more enjoyable shopping experience and our bank balances will thank us as well.

Use cash rather than credit cards

Another practical step that we should try is to use cash when purchasing. It is also important to note that studies have shown that when people use credit cards as opposed to cash they spend significantly more. Most people will agree that when we are buying those Christmas gifts, having to part physically with cash makes the reality of your purchase hit home much harder, as opposed to simply swiping the purchases and not actually physically experiencing that dip in your disposable income right now. However we feel the pinch as soon as credit card bills come in the mail during the course of the year that follows. Sometimes one cannot avoid using credit cards all together, so when you do decide to swipe ensure that it is not on an impulse buy and that you have shopped around for the best deal. Most of all if you are increasing the amount owed on credit during Christmas ensure that when the time comes you can pay the instalments that are required.

Plan a Christmas budget

Most people have a monthly budget when it comes to the normal realities of life, but somehow when December hits we tend to forget this logic. However if we can apply the same principle to Christmas it places us in a much better position financially and on a practical level as well. It enables you to keep yourself in check and prevents you from getting overwhelmed by the hype that could contribute to spending beyond your means. Having a pre-set budget and list also means that you are aware of your restrictions and enables you to stop spending. Once you have your Christmas budget in place, another useful tip is to ensure you actually keep to your plan, is to keep track of what you have purchased. This can be done by writing it down in a book or even keeping track on your phone - basically having the list of purchases physically available and not trying to keep tally in your head.

Impulsive buyers stay away from festive season sales

If you are an impulsive buyer and if you do shop for the sheer pleasure of getting a good deal perhaps it would be best to stay away from sales over December. The thrill and excitement of getting a “bargain” or walking away from a huge sale, feeling like you have truly made a good purchase, soon wanes when you realise you didn’t actually need what you bought. Remember that in effect those little sale purchases do eventually add up to a big dent in your bank balance. Although your secret shopaholic heart may not take kindly to such advice, come mid-January when you are still financially comfortable, I don’t think you will miss those “35%-50% sale” items which you didn’t need anyway.

As the festive season starts to begin, with Christmas virtually on our doorsteps, I am sure that being prudent with regards to spending will be the last thing on many of our minds. So before we get fully swept up in the merriment and delirium of the season, I urge one and all to take a step back and think about the way they will be spending their hard earned salaries and bonuses over the holidays. Remember Christmas does indeed come once a year and we should endeavour to enjoy it to the fullest, but not at the expense of having to pay for it (sometimes with interest) for the months that follow.

Risk of drawing to much from an investment

An investor must preferably not draw more 6% of his investment as an income, otherwise he or she runs the risk of experiencing a reduction of income at an age where it is impossible to do anything about it.

From Greece to Italy

Two thousand years ago, the world was ruled by the Romans.  Across Europe, from East to West, into Africa, and even including England, it amounted to roughly 1 in 4 people alive on the Earth who lived under Roman Law.  The Roman Empire was one of the largest and most enduring.  It is not only because of this central position that Rome played that we have the saying about all roads leading to Rome.  Their engineers were in fact one of the greatest road-builders in human history, building over 80 000km of roads.

So it saddens the history-loving heart to witness what has become of this once great Empire.  Reduced to petty political squabbles, and being amongst the most indebted countries on Earth, forced to defend its best intentions and actions from the marauding bands of bond vigilantes.  To say nothing of course of the plight of their creditors, who sit quivering at the looming prospect of Italy not being able to fund itself.

Yes, in this great financial crisis, it will be in Italy that the endgame will be fought.  So perhaps it is fitting that the saying “being thrown to  the wolves” also originates from the activities held in the Roman Colosseum.  Perhaps we should rather point to another idiom, that of the chickens coming home to roost.  The famous question will perhaps one day be asked : Why did the chicken cross the (Roman) road?  “Why, to get a haircut, of course!” will be the answer.

Source: Atlantic Asset Management

Eurozone deal – the good, the bad, the ugly and the unknown

The Good

The most important aspect is that Eurozone leaders finally recognized that the current trajectory of Greece’s public debt is unsustainable, and that wave upon wave of harsh austerity measures will not change it (in fact it can only worsen it).  Bondholders (mainly banks) will thus write down 50% on their current holdings of Greek debt.  This should bring the Greek debt-to-GDP ratio down to 120%, down from roughly 160% - still high, but more manageable.  Greece will also have access to €130bn in bail-out funds to help keep government operations afloat (and, yes, to make interest payments on the remaining 50% of its bonds).  While the 50% haircut has been called ‘voluntary’, it could still trigger payouts on insurance contracts against default (credit-default swaps or CDSs), if the International Swaps and Derivatives Association deems a “credit event” to have taken place.  The complex web of CDS payments triggered by the Lehman Brothers collapse was part of the reason for the financial chaos in 2008.  So far ISDA says the deal unlikely to trigger CDS payments.  But this will also lead to many questioning the usefulness of CDSs in the first place; if they can’t protect you from a 50% sovereign haircut, when can they cover your losses?  This could lead to longer term instability in that market. 

The Bad

At €440bn, the current bail-out fund (European Financial Stability Fund) is too small to support Italy and Spain should these countries come under speculative attack (or if the market simply loses faith in their solvency).  Italy’s public debt pile alone is close to €1.9 trillion.  The EFSF relies on the AAA-rating of the countries behind it.  But these countries will not (in the case of Germany) or cannot (France’s AAA rating is already at risk) increase their contribution.  Germany has also blocked moves to allow the European Central Bank (ECB) to stand behind the EFSF (the ECB of course has unlimited firepower, since it can print money).  Thus, to increase the firepower of the EFSF leverage is required.  One option is for the EFSF to guarantee only the first 20% loss of any new government bond, effectively stretching the €440bn fivefold.  But what happens if the losses exceed 20% (as in the case of Greece)?   Alternatively, special purpose vehicles (SPVs) could be set up, where the EFSF guarantees the first ‘tranche’ while other investors (sovereign wealth funds or the Chinese for instance) buy the other tranches.  If this sounds a lot like the financial engineering that caused so many problems in 2008, that’s because it is.  Leverage can work in both ways - it can also concentrate risk and spread problems from the PIIGS back to the countries backing the EFSF (especially France).  And will other investors want to buy into these tranches? 

The Ugly

The €106bn recapitalisation of Europe’s banks will help them absorb the losses on Greek (and potentially other) write-downs.  The deal requires European banks to raise core capital reserves to 9% by June 2012.  However, while recapitalization should make banks safer, it will also lead to a reduction in lending, potentially starving Europe’s struggling economy of credit. 

The Unknown

Finally, the plan does nothing to address the fundamental imbalances within the Eurozone, and the uncompetitiveness of the peripheral countries.  Germany will continue to run trade surpluses with the likes of Greece, effectively stealing demand from them. Greece, Portugal and to a lesser extent, Ireland, remain trapped in a currency that is too strong for them, meaning that the only way to regain competitiveness is via a painful ‘internal deflation’, i.e. pushing down prices and wages.  All the while, receiving no assistance from the central bank (unlike the US or UK, where the central bank has done all it can to ease the pain.)  Italy and Spain, the third and fourth largest eurozone economies, are not bankrupt (despite their high debt loads) as long as the interest rates on their debt remain low.  If the market frets about default, it will push yields up and potentially force the very event it fears.  While the EFSF has been increased (through leverage) to prevent this eventuality, no one wants to see the EFSF tested.  Finally, while the pieces of the puzzle are starting to fall into place in terms of a long-term solution to Europe’s woes, one cannot help but be a bit skeptical.  This was the third ‘comprehensive plan’ so far this year, following the 14th summit in 21 months.  Following the 21 July summit, it took European parliaments three months to approve changes to the EFSF, because they all went on holiday!  In this market environment, a day is a year and three months a lifetime.  European leaders need to provide detail on this plan and soon.

With acknowledgement to Fairbairn Capital

How much is enough?

How much is enough?

There is a famous story about the author Joseph Heller, attending a party given by a billionaire. Another illustrious author, Kurt Vonnegut, informed Heller that the host, a hedge fund manager, had made more money in a single day than Heller had ever earned from his wildly popular novel Catch-22. Heller responded: "Yes, but I have something he will never have… 'enough".

 

What Heller is talking about is knowing what really brings you happiness. No matter how much we accumulate, there will always be someone who has more. We need to be thankful for what we already have - a job, a home, friends, family, and food on the table.

The idea of "enough" is worth thinking about. There are times where we often feel pressure to spend and accumulate more "things". We feel bad if we can't give our loved ones the gifts they want and often feel obliged to buy gifts for other people so we appear generous. Perhaps we should focus more on generosity of spirit, on giving of our time rather than from our credit cards. 

At some stage in your financial planning, you need to ask yourself how much money is enough? How much time with your family is enough? How much time to pursue your passions is enough? Also ask yourself how you can balance all this to achieve a true sense of fulfillment.

This is as important as asking how much you need to be saving because saving is the flip-side of spending. Does all that "stuff" you spend your money on actually bring you happiness? We tend to buy things to fill our home that do not bring us any real joy beyond the few minutes we spend actually buying them. We may find saving for a dream far more emotionally satisfying.

I recently came across an article in Time that really brought the "stuff" we accumulate into perspective. In the article, organizational consultant, Peter Walsh says, "It's not necessarily about the new pots and pans, but the idea of the cosy family meals that they will provide. People are finding that their homes are full of stuff, but their lives are littered with unfulfilled promises."

Take a moment when you are with your family and friends to discuss what exactly it is that brings you happiness, whether you have "enough" and what "enough" means to you. You may be surprised by their answers as well as yours.   
 
   Source: Liberty

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