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This is the transcript of the above video.
Hi everyone, this is your friendly neighborhood financial advisor: Leyder Murillo, but you can call me Aiden from Wolfpack Investment Management.
Today I want to talk to you about how November signals for some the beginning of the holiday season which means putting up Christmas decorations and buying gifts. Don't judge me, but I am in the camp that starts to put up the Christmas decorations right after Halloween.
This year the holidays may be a bit different from the past. The cause is inflation. We have had the highest inflation rate in the last 40 years. Although inflation has begun to taper, it is far from the Federal Reserve's target of 2%. Therefore, these are some things that you should be aware of during this holiday season.
The first one. It must be automatic but have a budget for your spending. We like to budget with clients at the beginning of the year for what to set aside for gifts when we work on cash flow management (aka budgeting) within their financial plan. Unfortunately, this year's high inflation threw off everyone's budget. So, with our clients, we had to approach this year differently and make modifications. That's what's great about having a financial plan – it is not set in stone and can be modified as variables arise.
Once you have a set budget, stick to it because if you go beyond it, you're in what I call the "Bermuda triangle of spending," which may lead you to overspend as you have no grasp of your budget anymore.
The second, look into shopping the sales and use coupons/promotions from stores. This year many retailers know that inflation has drastically changed the spending habits of consumers like you and me. They will do their best to compete against each other but also keep prices up, as inflation has also affected their supply chain. Remember, it doesn't matter where the item is purchased unless you have some sort of convenience.
This leads me to the next point; certain credit cards provide a convenience factor. For example, some credit cards generate points or give cash back which offers convenience as these can be used to pay for purchases. Remember, this type of convenience is not symmetrical, and often, the value of these convenience factors may not be enough to purchase specific items. But these convenience factors can be sought as coupons which may help when buying a big-ticket item.
Lastly, as we talk about credit cards, most credit cards use variable rates. With the Federal Reserve increasing interest rates to calm inflation, purchasing holiday things may cost you more because of interest charges unless you do not pay off the credit card in full. Keep this in mind because this can lead to overspending.
To entice spending, some stores may offer their credit cards at a promotional rate with zero interest for a set number of months. However, be aware that if the balance is not fully paid before the end of the promotion, you will be on the hook for the remaining balance and the accrued interest on the original amount you charged.
For example, you get a credit card at a store with a zero-interest rate teaser for one year. You use this credit card to buy a 4K TV for $2,000. You pay down most of the credit card but leave a small balance before the end of the year promotion timeframe. You think since you paid most of it down, the interest charge will only be the remaining balance. Nope, that is not how it works; you'll be on the hook for the accrued interest of the original purchase from one year ago – in this example, the interest will be for one year on the original purchase of $2,000. Therefore you ended up paying more for the TV than you initially had hoped.
Often many people do not know that these teaser rate credit cards charge you interest on the original purchase if not paid in full by the time the promotion is over.
These are not all-encompassing, but these are some things that you should be aware of during this holiday season. If you feel that your finances are not in order this year, your cash flow is not enough, or you are not on track for your financial goals, perhaps it is time to think about working with a financial advisor/planner. The holidays can be difficult if you feel like this.
We offer a free financial assessment to see if you're on track with your finances to reach your financial goals. To schedule your free financial assessment, go to our website and click on the free assessment button. You'll find details on our website in the description below.
I wish you and your family a wonderful holiday season!
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