Christmas is when we overindulge, over-travel, and, worst of all, overspend. However, racking up credit card debt during the holidays can leave us in a challenging situation for years.
We live in a consumer-focused nation that thrives on spending in the economy. I love the holidays as much as everyone else, but we have to be intentional (smart) about how much we spend.
Today, I want to discuss a better way to shop during the holidays. Ultimately, we want to spend money from free cash flow, not credit cards or savings.
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Are you a spender or a saver? Luckily, I just wrote an article titled “Are You a Spender or a Saver?” Before making a change, you will need to understand your emotional connection to money.
The book “Effortless Money” does an excellent job of directing you toward a better relationship with money. Also, “Know Yourself, Know Your Money” will help you draw conclusions about your spending.
The holidays are when companies spend millions of dollars to hit your emotional spending side. You must prepare yourself for the onslaught of adverts, commercials, and social media bombardments.
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Finding a better way. Before we can deal with our debt, we have to stop spending. You’ll need to ask yourself and your family a few tough questions.
- Do we need to spend on gifts?
- Do we need to have a massive dinner?
- Do we need to travel to each other?
I understand that these are challenging questions because they go against your programming. I love to spend time with my family during Christmas as much as everyone else.
However, during my 23 years in the Marine Corps, I have missed more Christmas seasons than I can count. But I’ve learned that family is family, no matter your location.
When you are in debt, even $500 of extra spending can take months to overcome. You may have to skip a few low-key Christmas seasons before getting back on track.
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Writing down your debt pay-off date. How much debt is holding you down? Do you have student loans, automobiles, weddings, or credit cards?
In the book “I Will Teach You to Be Rich,” Ramti Sethi asks, “What is your debt pay-off date?” Most people don’t even know their total debt load, let alone their pay-off date.
If you can determine your debt payoff date, you can work with your family to achieve debt freedom. Then, you can prepare a debt-free Christmas the following year.
There are many ways to pay off debt, but the debt avalanche and debt snowball are the two main concepts. I prefer the debt snowball because it gives you emotional momentum much sooner.
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In the debt snowball, you pay down your smallest credit cards and personal loans first. As you finish them, you use the cash flow toward the next debt.
My wife and I used this technique to become debt-free before we turned 40. Paying off each card felt great, and the emotional boost keeps you focused on the prize.
Saving for your Christmas. Once debt-free (it may take 2-3 years), you can start saving toward your Christmas travel, gifts, and parties.
The first step is to determine your desired budget in January. Yes, you will need to PLAN twelve months in advance. Let’s say you want to have $4,000 for Christmas.
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You can then set a budget where you save $400/month toward your Christmas season. Saving for Christmas will prevent you from going into debt.
Fighting your impulses. You will have to fight your impulses to spend your cash during the year. Don’t worry; surviving credit card debt will harden you against advertising and social media.
But, as you get closer to Christmas, your spouse, children, extended family, or friends will play on your heartstrings. They will imagine a bigger Christmas than you planned for earlier.
They may want to have a destination for Christmas, take fancy pictures, or dress in expensive pajamas. You must stick to your budget. Being intentional with your money (some call it obsession) is the only way to long-term success.
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Welcome to Passive Income Christmas. Eventually, you will want to create cash flow from assets—we call this passive income.
When you invest your money or time into collecting assets, they can fund your Christmas. This is the phase my wife and I are currently arriving in this year.
We earn $1,110/month in dividends from dividend-paying stocks. Therefore, we can save our dividends for a few months and arrive at $4,000.
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By using dividends, I can keep my savings intact while not using credit cards. Cash flow is king, but it will take financial education to reach this point.
By the time you become an investor, you’ll be much different than your family and friends. You’ll view Christmas as a time to “spend with family,” not “spend on family.”
Time is our most valuable resource, and passive income frees you from the grind. Spending thousands of dollars on video games, clothes, and jewelry was not the original intention of the Christmas season.
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Conclusion. Getting your money right will allow you to enjoy Christmas for what it is—the season of love and enjoyment.
If you have any form of debt, it causes stress and anxiety. As much as we want to give our kids what we didn’t have, there is a better way to achieve our goals.
Something we didn’t have was financial education. We can use Christmas as a great time to teach our kids about saving and investing and the value of time and relationships.
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My wife and I racked up a lot of debt (-$77,000) trying to be the average American household. Now, we can spend $2,000 to $4,000 for Christmas from our dividends.
It took us almost four years to arrive at this point, and I want to pass on these feelings to you. You deserve to be free this Christmas and every Christmas afterward.
However, you must buy your freedom by controlling your spending, living on a budget, and forgoing expensive habits. Can you make the change? I think you can. Good Luck!
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