Savings plans can ease financial pressures
Savings plans can ease financial pressures
July 28, 2008
BY CATHRYN CRENO
The Arizona Republic
If you start today, and stick $10 a week in a savings account every Wednesday until Thanksgiving, you'll have at least $220 set aside for holiday gifts, party clothes or New Year's champagne. It's the price of a couple of unmemorable lattes or trips through a fast-food drive-through.
Even with gas prices and food prices on the rise, some Arizonans may be able to save more. Setting aside $50 a week would give them $1,100 plus interest to spend during a holiday season.
Why bother to think about it in July?
"If people don't start planning right now, people are not going to have cash of their own to spend for the holidays. They are going to have to use credit," said Jeff Boulton, owner of Rise Above Debt Relief, a Tempe firm that teaches clients to budget and get out of debt.
"I haven't seen many people who have an extra account for holiday saving. I find most people don't budget at all. That's why America is tapped out."
Even if you don't typically overspend at holiday time, with the uncertain economy, this is a good year to squirrel away extra cash.
Five new regional malls have opened in the Phoenix metro area in the past few years. Because shoppers are being cautious with their money, retailers are expected to bring on sales and promotions like never before.
At the same time, credit is expected to be harder to come by. Credit-card companies are struggling with bad debt and other economic pressures. Some are lowering customers' credit limits and raising interest rates.
Promotions traditionally available at holiday time, like zero percent interest over several months, may not be as available, experts say.
"Credit standards are tightening up," said Dawn Wharton, regional director of development for Consumer Credit Counseling Service in Phoenix. "We have seen it with the housing market and we will be seeing it with credit cards."
Learning to save
Credit cards have been so readily available that for years companies have set up promotions on college campuses.
The result, Wharton said, is a generation or more of consumers who pull out the plastic for everything and "never see the cash leave their hands." Saving for future purchases can be a foreign concept.
CardTrak.com, a company that tracks credit-card use, says on its Web site that in 2007, the average American household had $9,840 in credit-card debt.
This wasn't the case decades ago, when credit was tougher to come by.
Some Baby Boomers and their parents likely remember joining so-called Christmas clubs at their banks or credit unions so they would be sure to have enough money on hand for the holidays.
The account holder would have a small amount - $5 or $10 - put automatically into their holiday account each week. Then, right before the season, the institution would add the holiday-fund money to the saver's regular account.
The coin jar
Holiday accounts still exist, but they are not the only way to save.
The Baier family of Chandler, for instance, pays for many of its gifts with about $500 worth of spare change collected year long in an antique bottle that belonged to the kids' great-grandmother.
Susan Baier, 44, a marketing manager, said her family started saving change for holiday gifts three years ago, when they discovered that the Coinstar coin counting machine at a nearby grocery store would give them the value of 100 percent of their cash if they exchanged it for an Amazon.com gift certificate.
Coinstar machines, which can be found in grocery stores and convenience markets, also exchange coins for certificates to retailers such as Starbucks, iTunes and JCPenney.
The first time the Baiers took their change to the machine, they had been collecting for a couple of years. They went home with a gift certificate worth about $1,200.
"Then we took the gift certificate, went online and did all of our shopping," Susan Baier said. "You can buy anything on Amazon. Books, clothes, technology like iPods. And because we bought so much, we even got free shipping."
Susan Baier said she, her husband Ron, 46, and kids Emma, 8, and Andy, 12, all regularly toss coins into the jar after going through their pockets, purses and change trays in their cars.
"It's definitely money we never miss," she said.
Wharton said many people would be better off if they cut up the plastic and went back to older methods of paying for the holidays, like saving coins in jars or putting money in holiday accounts.
"Especially if you are not disciplined about savings, having your financial institution automatically transfer your money into an account is very helpful," she said. "Even $15 a month can be helpful."
Wharton said she has counseled people whose planning skills are so weak that they postpone car payments, the rent or mortgage payments to make the holidays happen.
"Or they max out their credit cards every year, file for their tax returns in January and use that money to pay off their credit cards," she said.
Jennifer Quillin, assistant director of Arizona Saves, a non-profit organization that helps non-savers get going, said she has met people who pay for the holidays by skimping on groceries and postponing utility-bill payments.
Ridiculous, says Andrea Schauer, 39, of Phoenix, who budgets for the holidays 12 months in advance.
"Spending can be an addiction for some people," she said. "What you need is a plan. Like a diet."
Schauer said she has $200 taken out of each paycheck and put automatically into a savings account she uses for "gifts and holiday spending." She also takes time every January to determine the cost of vacations and other special things she wants to do during the year. She divides the cost by 26 and saves that amount also.
A glass artist, Qwest employee and owner of several rental houses, Schauer said she always has been careful with money. And she is being particularly cautious to avoid extra debt in the slow real-estate market.
"A credit card is for emergencies," Schauer said. "An emergency is not a designer dress on sale. An emergency is when my car needs a $2,000 repair."
Schauer admits she has it easier than many people because she comes from a family of planners and savers. By August, she said, her family will have made holiday plans that fit the budgets and desires of all members.
Quillin preaches the same message at Arizona Saves. Setting priorities early helps people stick to a budget and not go overboard with impulse buys.
"We encourage people to ask themselves 'What does Christmas look like to you?' " she said. "For instance, do they have to have an 8-foot tree surrounded by presents? Or would it be better for everyone to get one gift that they really want and then do some activities together?"
Regardless of the answer, it's a good idea to set a budget and start saving ahead of time, she said.
Boulton said people who aren't used to paying credit-card bills in full each month should get control of their budgets now, rather than dealing with the problem on top of holiday bills in six months.
"A lot of people just put everything on a credit card and have no idea that they actually are spending more than they make every month," he said. "They think they are fine because they are always on time with their payments. But they never pay their cards off. They have no idea what it is to create a budget and stick to it."
Sterling Kellis, 28, of Gilbert is one of Boulton's clients. He runs a small home-repair business and was doing well until the economy slowed down last year. Then, a second business he owned failed and a planned move to Utah with his wife and two daughters didn't work out.
He found himself paying two mortgages and putting everyday expenses on credit cards. Soon he was overwhelmed with bills he had no way to pay.
For a fee based on a percentage of Kellis' debt, Boulton helped the Gilbert repairman settle with his creditors.
Part of the agreement was for Kellis to give up his credit cards. His credit rating took a beating. He now pays for everything with cash.
"The misconception I had before was that I could spend now because I was sure I would always pay it back later," Kellis said. "My philosophy was 'The future is always going to be brighter.' "
Still an optimist, Kellis considers his current situation better than his previous one.
"We have a budget and a savings account. If we don't have the money for something, we don't buy it," he said.
Kellis, whose problems hit right before the holidays last year, said they had a "meager Christmas."
"We just got a couple gifts for the kids," he said. With cash.
"It was an adjustment but, in the long run, it feels better."
Copyright 2008, The Arizona Republic
Primary Press Contact
The Consumer Federation of America
Attn: America Saves Campaign
1620 Eye St NW, Suite 200
Washington, DC 20006
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