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Surviving the financial 12 days of Christmas
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With Christmas just around the corner, the Institute of Chartered Accountants in Australia is encouraging consumers to spend money wisely over this festive season or risk waking up with a financial hangover in the New Year. The Institute’s Western Australian General Manager, Con Abbott, warns consumers to avoid over extending themselves on credit cards and other borrowing facilities in the holiday rush. 
 
“While the Western Australian economy is booming at the moment, consumers should be mindful that the good times cannot last forever, that WA is influenced by both national and global markets and the key levers in the economy, like interest rates, can increase rapidly”, Mr Abbott said. 
 
In the interest of assisting consumers to survive the Christmas period and keep their holiday spending in check, the Institute offers consumers the following “12 tips of Christmas”:  
 

  • Budget: Set a budget you can afford and then stick to it
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  • Plan: Identify what you will purchase and make a list - check it twice
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  • Timeframe: Don’t leave it to the last minute, rushing creates the risk of spending more than you budgeted and results in impulse buying
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  • Borrowing: Use ‘calculators’ to determine how quickly you can pay the debt off and what interest expense you will pay. Remember use of debt costs more this Christmas due to the increase in interest rates this year, so where you can use cash
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  • Repayments: When paying off a credit card, always pay above the minimum repayment amount or preferably try to pay off the credit card and make payments before the due date in order to avoid late fees and burgeoning interest costs
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  • Credit cards: Stick to one credit card, otherwise debt can multiply with multiple fees and charges
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  • Store cards: Steer clear of store cards and credit cards with high interest rates and avoid using these facilities to finance large purchases
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  • Be wary of: ‘Buy now pay later’ offers, read the small print and plan repayments to avoid high interest costs
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  • Set up: A separate bank account for Christmas 2007 and have some of your pay credited to it
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  • Save: Your 2007 tax refund/family tax benefit and use it to pay for Christmas
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  • Watch out for: Sales, special offers and discounts, Christmas presents can be bought in the June stock-take sales for example and put away until December
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  • Post Christmas: Start planning for 2007, check out the Commonwealth's "Understanding Money" website: www.understandingmoney.gov.au
 
One trap the Institute warns about are the “buy now pay later offers”, these require vast amounts of discipline and ensure that you read the small print and plan repayments to avoid high interest costs. 
 
“To illustrate the high cost of interest, if someone were to purchase a $4,000 plasma screen television, they could be paying as much as a $1,000 in interest and fees (i.e. 25% of the original purchase price) on a ‘budget credit card’ versus the $1,700 they could pay on a non-budget credit card (ie. more than 40% of the original purchase price),” Mr Abbott said. 
 
It is important that consumers do not let their Christmas spending in 2006, leave them with a financial disaster in 2007,” he said. 
 
The New Year is a great time to make resolutions and getting the family’s finances in order should be a priority for 2007. Consumers should consider engaging the services of a qualified financial planner to develop a financial strategy for the future.