With the long warm days of summer and with kids off from schools and colleges, it’s tempting to want to get out and splurge on holidays and getaways, summer concerts, activities for the kids, etc. All this summer fun shouldn’t end up breaking your budget, however, by throwing you off your savings and investment plan or—worse—having you dipping into retirement funds or landing you in serious credit card debt.
Here are a few steps to help you enjoy your summer guilt free, without breaking the bank.
- Rein in Your Spending
Can’t stop spending money? As I always say, with most things financial, it really helps to start with a plan well ahead of when you anticipate spending, ideally six months before your planned “summer” expenses so that you can set aside small amounts every month towards your upcoming trip, vacation, or shopping plans. As a first step, always create a spending plan – and the sooner, the better.
It’s important to resist getting carried away and to keep your spending in line with what you can reasonably afford. In fact, one of my key pieces of advice to my clients is to get comfortable with your financial status and spend according to your budget, not your social aspirations. If you can maintain that financial discipline, you’re virtually assured of a comfortable financial nest egg.
Now, if by chance, you’ve already landed yourself in debt, then focus on putting together a debt repayment plan as your next step. A good first step is to absolutely stop using credit cards to cover your everyday living expenses and learn to live within your financial means. The sooner you stop living on credit, the better—otherwise you could find yourself deep in debt. If you have moderate credit card debt, then the next step is…
- Consider a Balance Transfer Credit Card
A balance transfer credit card offers a reduced rate of interest for a limited time and that could help you pay off debt faster. Sometimes, you may even get an offer that waives off the roughly 3% fee that accompanies most transfers. But make sure you use the balance transfer credit card to cut back on your debt, not as yet another card you can spend on.
Be aware of the “teaser rate” time frame which typically lasts between 4 and 18 months and make a plan to have the debt paid off by the expiration. If not, you may end up right back where you started.
Also, know that a balance transfer on a new credit card could ding your credit score…
- So Keep an Eye on Your Credit Score
About a third of your credit history is impacted by your payment history, so if you are unable to make your debt payments on time or if you skip them altogether—a big no-no—then your credit score will take a severe hit.
On the flip side, if you work to pay down your debt and use less credit than is available to you, you will likely start to see your score improve. If you’re approved for expenses of up to, say, $5,000 on your card and only spend about $1,500 or so per month and pay your card in full every month, you’ll steadily improve your score.
And with online fraud, identity theft, and phishing scams aiming to steal your personal information, it’s always a good idea to review your credit report once a year to make sure there aren’t any problems, like errors or fraudulent accounts that could tank your credit even if you’ve been doing everything right. So make sure you get a free annual credit report each year from sites such as AnnualCreditReport.com and do all you can to live well within your financial means and to quickly clear all outstanding debt.
Finally, let’s discuss the Snowball Effect. This is one of the most powerful financial forces in the universe, second only to the magic of compounding. This is not theoretical for me since I have experienced this myself and know what I’m talking about, as I will explain to you in a moment
With a little discipline and laser-like focus, you can start to chip away at your debt and actually start building some savings. Those savings applied with intelligence and focus can lead to wealth and end with financial security.
Like the child that packs his snowball into his hand and then decides not to throw it but to put it on the ground and roll it, he quickly begins to see it attract more snow and grow larger and larger.
Like that snowball, your money acts in a similar fashion; you start small and add to it. After a time, it will attract other money in the nature of interest or dividends or the ability to own a home, start a business, or invest in an IRA or a 401k. It continues to build as you add to it. You get out of debt and stay out of debt, and the snowball gets larger and larger. This is what I refer to as the virtuous cycle. You have all heard of the vicious cycle, when things spiral downward. This is the opposite, things now spiral upward—a virtuous cycle.
As I said, I had my own money challenges in life and decided to change my behavior and to concentrate on building a sizeable nest egg. I experienced the Snowball Effect first hand—and so can you.