Brian Lane, assistant professor in the Edwards School of Business and certified financial planner (CFP)
Brian Lane, assistant professor in the Edwards School of Business and certified financial planner (CFP)

The post-holiday financial hangover

Despite a downturn in the economy, Canadians spent a lot of money this holiday season—be it on gifts for loved ones, a vacation or maybe a little something for themselves.

Data from Moneris, the software program that processes debit and credit card trans­actions in Canada, show that spending on Black Friday and Cyber Monday increased 9.6 and 14.1 per cent from last year, respectively. And on Dec. 23— considered the busiest shopping day of the year for the frenzied, last-minute shoppers among us—Canadians spent more than a billion dollars just using their plastic. With initial numbers like that, it is no wonder many people are feeling the post-holiday debt crunch.

Brian Lane, an assistant professor in the Edwards School of Business and certified financial planner (CFP), offered a few strat­egies for escaping the red zone.

1. Acknowledge there is a problem. Like any instance of losing control, an important step is accepting responsibility for the situation. "We need to acknowl­edge that something went wrong, instead of just shrugging our shoulders," he said.

2. Determine where the problem lies. This should be straightforward for someone who is in charge of their own accounts but it may be tricky in the case of a joint account, said Lane, or any situation where a family shares responsibility for money management. "If a family manages spending together, then the aggressive spender and problem spending areas must be identified."

3. Put controls in place. "We can't fix the problem until we stop the over-spending," said Lane. Some suggestions include a self-imposed waiting period before larger purchases are made, switching to a cash-only system, hiding or destroying credit cards, or trusting a close friend or family member with helping to establish better spending habits. These measures may seem extreme, he said, but are vital for anyone wanting to see real change in their spending habits. "Controls have to be put in place, whether they're controls that we manage, or controls that we get help with."

4. Once the spending is under control, focus on paying down debt. This will require some long-term planning, explained Lane, but the work is worth it. "Record cash inflows and outflows to determine how much cash should be available at the end of each month, then set a target for additional funds that could be used for debt repayment. If we don't hit that target then the spending has to be adjusted."

5. Design a budget. The b-word is not an attractive word for many people, said Lane, "but if it's done in a way that is reasonable, with a level of detail that's informative but not over­whelming, budgeting can be very useful."

6. Stick to your budget. Once it is tailored to suit your needs, you can keep track of where your money comes from and where it goes, and better plan for the future, he said.

7. No, really, stick to your budget. This is a longer-term tactic where the initial hard work will pay off down the road—figu­ratively and literally. Spend less than what you make, said Lane, otherwise you will end up with debt all over again.

8. Pay yourself first. It is important to set money aside regularly to cover future spending needs. An example of the pay yourself first principle, said Lane, is the Canada Revenue Agency (CRA) withholding tax from an employee's paycheque. "If it works for our tax agency, why can't it work for us?" He asked. "Spreading out the payments and collecting up front removes uncertainty, and this is an idea that can work very well for people who are interested in saving for future needs." Consider depos­iting this in a tax-free savings account or registered retirement savings plan account.
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