Forgoing a Financial Holiday Hangover

The holiday season can be a magical time of year filled with happiness, celebration and gratitude, but it’s also a time when Canadian families accumulate significant debt. Gifts, decorations, special events and travel can be costly, leaving many families with accumulated debt from which it could take six to eighteen months to recover.  Debt worries can impact all aspects of an employee’s life—including their work performance. Consider sharing the following debt management tips with your employees this holiday season.

1. Good intentions. Intentions may be good, but one fact remains constant—the average Canadian will over-spend on gift giving, entertainment, food and other related expenses this holiday season, causing more debt. Many are left with a significant amount of debt after the holidays, with no means of prompt repayment.

2. Know where you stand. Cash flow statements assess the amount, timing, and predictability of cash inflow and outflow, making them useful as a basis for budgeting. A net worth statement, tallied up once a year, can help shed light on spending patterns.

3. Assess your assets. List everything you own and everything you owe. The bottom line will show an improvement year over year when debt is consistently paid down. Examining monthly budgets can help determine realistic target limits for holiday gift giving.

4. Good Debt vs. Bad Debt. Debt is debt, but good debt improves the overall balance sheet (i.e. taking out a mortgage to purchase a home, which appreciates over time), while bad debt does not.

5. Know the difference between want and need. A need is crucial to survival and remains constant throughout a person’s lifetime. A want is something a person desires, immediately or in the future, and differs from person to person. Building wealth comes down to identifying needs and wants and delaying the wants until you can truly afford them.

6. Make a list and check it twice. List gift recipients and seasonal purchases and include wrapping, decorations, entertainment and wardrobe. Estimate the cost of each planned expense. Keep your final list handy on all shopping trips to help resist impulse buying. Set a holiday budget by determining how much can realistically be paid back in full within two months. Compare it with last year's total holiday expenditures to calculate seasonal spending. If the total exceeds your allocated budget, revise your purchases until the budget covers expenses, including leeway for unexpected items or price fluctuations.

7. Don’t fool yourself—credit card purchases count towards your total budget. Credit card use is linked to impulse spending, overspending and increased debt. Keep track of spending by subtracting all credit card purchases immediately from your budget. Whether shopping in stores, by mail or online, use only one credit card for holiday purchases. Many financial advisors urge consumers to steer clear of carrying balances on department store cards, due to their higher rates of interest.

Talk to your Cowan Insurance Group consultant today about more strategies to keep you and your employees financially healthy in the New Year.