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The wrapping paper is strewn around the house, you’ve had one too many helpings of pumpkin pie, and you’re afraid to go to the mailbox and get January’s credit card statements. It’s happened again: you overspent this holiday season. You’re not alone. According to one survey, despite the financially tough times, the average American planned to spend more on holiday gifts this year than last. If you didn’t pay cash, you must now pay for those gifts. And if you want to start the New Year off on the right note, you’ll need to have a recovery strategy for your finances.
1. Stop spending.
You may be tempted to take advantage of all the after holiday sales, but if you already can’t pay for the gifts you gave, you should stop accruing more debt.
2. Use your tax refund wisely.
About 80% of Americans got some type of income tax refund last year. If you’re one of them, take a portion of your tax return and pay down your debts. Some financial experts say to use the “30-40-30 plan”: 30% of your refund should go to debts, 40% to present needs, and 30% to savings, either an emergency fund or retirement savings.
3. Have a plan for your income.
If you haven’t created a spending plan in the past, now is the time to do so. If you’ve got one in place, it’s a good time to re-assess it. If you’ve overextended yourself financially, then perhaps you were overlooking or underbudgeting in a spending category (like gifts). The only way to know how much you have to save is to understand how much you’ve spent.
4. Automate.
Once you’ve figured out how much you can save as well as what you need to save for, it’s time to take the guess work out of it by making it automatic. Set up an allotment or a direct deposit from your pay to a dedicated savings account. You can automate your debt repayments through your bill pay, and you can track your progress via a site like Powerpay.org, a self-directed debt elimination plan sponsored by Utah State University Extension.
Facing up to your financial situation can be tough, but if you set aside a couple of hours to assess your spending and your goals, you’ll reap the rewards throughout the year!
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