Investing: Zagging

When you talk to your friends and neighbors about investment strategies, you probably hear a lot of the same ideas. People tend to invest some amount in blue chip companies, their employer, mutual funds, 401(k)s, IRAs, 529s, and money market accounts. As you look around, you might notice that everyone looks kind of similar. They may be wearing the same casual clothes you made fun of your parents for wearing a few years ago. And you may begin wondering if investment strategies are like Old Navy cargo shorts … something we all do without thinking about it.
It’s fun to imagine a backyard barbecue for money managers – well, it’s more fun than attending a backyard barbecue for money managers, anyway – and wonder if they have the same investment conversations we do.  Do they all do things basically the same way?  Is the distinction between these professionals as simple as how they slice the pie?

In contrast, whenever one of our friends makes a great investment, they hold court at the cookout. They tell us about the detective work they did or their amazing insider info, and we eagerly gobble it all up. The same thing happens with the pros.  When one investor makes a counterintuitive trade that pays off, they become famous and charge a fortune in fees for their new fund.  The easy lesson is that when everyone else is zigging, it’s time for you to zag. Unfortunately, when everyone else zigs, they probably have a good reason for it, and zagging is a bad idea. 

The kinds of high-risk investments that sound cool at a barbecue can bring a great return, but they rarely pay off. It might not feel like it, but there are actually many more people at the barbecue who lost money zagging than there are people who made money. They’re just not going to gather everyone around to tell them about it.  In fact, 8 of 10 fund managers failed to beat the market average last year, according to CNN.

Think about it this way: If you have 100 investors and 90 take the well-trodden path full of CDs and index funds, 10 others are taking odd risks and following their gut.  If 90 percent of those people lose their money, that’s 9 out of the 10 idiosyncratic investors who lost money. If you do that again next year, that person needs to try something new again and has, once again, a 10 percent chance of success.  

Then, imagine the same scenario the following year.  The likelihood that this person can make big money three years in a row in this scenario is one in a thousand.  If you expand it to five years in a row, the odds drop to one in a million.  If it seems like there are too many investment experts living off a vast fortune for the odds to be so low, remember that the United States is a country in which being one in a million means there are 300 people exactly like you.  

That diverse and boring portfolio is your best bet for bringing in the steady return you want. So, while it might be as boring as cargo shorts, remember that no one likes the neighborhood dad who always shows up to a casual barbecue wearing a fancy jacket and trousers either.

Nightmare On Your Street – Finances And Horror Movies

As Halloween gets closer and you want to avoid the chilly darkness of October evenings, grab a blanket and stream a marathon of scary movies. Horror flicks are classic fun, whether they’re good enough to keep you up all night when you’re home alone or bad enough to laugh at while with a group of friends because we all know what’s going to happen next. The classics follow a simple formula, but it works. 

The same is true when it comes to your finances. Spend less than you earn, pay off debt and invest your money with trustworthy people.  Still, we have trouble getting all of the complex parts of our financial lives sorted out.  Let’s try applying the scary movie formula to your finances so you’ll never have that heart-racing moment of panic when you check your balances again. 

The scary cat.  In the first 15 minutes of all the classic horror movies, our protagonist gets startled by a cat. It’s a silly little trope that keeps coming up, but screenwriters use it because viewers tend to get bored without a scare in the first few minutes. Bringing out the monster too early can kill the suspense, so it’s an easy-to-insert moment to keep viewers on edge.  Watching scary movies in my household, I can tell you that it works: That stupid cat has caused my heart to race faster than any workout I’ve done.

Are you jumping from the cat?  Does every market hiccup cause you to change strategies?  Are you yanking money out of savings to throw at the stock market (or vice versa) every year?  It’s time to get past that initial scare.  The market isn’t going to kill you overnight, just like it won’t make you rich overnight (Black Tuesday 1929 and Google’s record-breaking July 15th notwithstanding). 

If you want to develop a plan with which you can feel safe during the scary cat moments, give us a call at 410-663-2500. If you want to do it yourself, we can get you into a safe plan for saving with a high yield account or certificate in just a few minutes, which can help balance the risk of your other investments.  If you’re trying to build a safer safety net for retirement or college savings, we’ve probably got more savings options than you’ve ever heard of, many of which have major tax benefits. We can walk you through a few plans, help you pick the one that’s right for you, and in many cases, we can even set it up with automatic deposits so you don’t have to think about it again.

The victim who runs upstairs when she should run out the door. Why?  Why?  Why are you running upstairs, you silly soon-to-be victim?  Of all the silly horror movie clichés, this is the one that drives me bonkers.  We always get a few establishing shots of the house early in the movie, which shows us that this house is enormous enough for a final-reel chase scene with the killer.  No one needs this much house. It’s usually a teenage girl with a single parent (who is not at home) in a house big enough to hold the entire football team of her late boyfriend.

Do you have too much house?  Are you cleaning extra bedrooms you don’t use? Do you have a home gym, office, or library that you never visit?  Maybe it’s time to simplify.  You can sell that house and move into something a little sleeker, and use your windfall to put in all of the custom features you’ve ever wanted on that new house.  Which would you rather pay for:  the storage room that’s basically a walk-in junk drawer or a dressing room with a walk-in closet?  Give us a call to find out how we can help you. 

The killer who just won’t die.  In every great horror movie, there’s a killer with an uncanny ability to survive anything the protagonists throw his or her way.  In your finances, sometimes large debts can feel that way.  No matter how fast you run, they just keep coming, like Michael Myers chasing Jamie Lee Curtis through two decades of Halloween movies.  You throw cash at the balance every month, but nothing happens.  What can you do?

If you want to kill a scary movie monster, you can’t do anything that the protagonist does in a scary movie.  After all, the scary movie wants to make a sequel, but that’s the last thing you want out of your debt. Instead, let’s adapt a strategy from the Terminator:  Even an unkillable robot from the future can’t stand up to a vat of molten steel. You need to submerge your debts in one large vat that can consume them all: Turn all of your high-interest, variable-rate, hidden-fee credit card debts into one simple, low-interest, fixed-rate homeequity or debt consolidation loan with all of the transparency and confidence you’ve come to expect from Destinations Credit Union.  The first step is calling a Loan Officer to discuss your goals. Through our partnership with Accel, you can also get free unlimited financial counseling to develop a plan. 

Hopefully, your finances aren’t a horror movie.  Horror movies play on our fears for entertainment, but it’s not as fun in real life.  If they are, though, it’s better to call in some help than it is to split up and try to explore the woods alone. That’s why we’re here.  With a little help, your money can look more like a swords-and-sorcery epic:  Everyone’s a hero and everyone gets a happy ending.

Buying A Used Car, Part One: Finding The Car

You’ve probably heard that a car is the second-largest purchase the typical American makes after their home, but that’s not really true.  It might seem like it, since the median home price in the US was just under $190,000 last year, while a new Honda Civic starts at about one-tenth as much.  When you look a little deeper, though, you’ll probably only ever own one home at a time, and when you sell it, you’ll get your money back. You might even make a profit on the sale.
With a car, though, the life expectancy is just under a decade, it has limited resale value, and many families own several automobiles. Because of facts like these, the actual cost of car ownership over a lifetime can be staggering. More specifically, you can still expect to spend a minimum of $120,000 (in 2015 U.S. dollars) per driver over the course of a lifetime. That number goes up if you trade in your cars in less than nine years or if you drive a vehicle that’s nicer than an entry-level coupe.  A two-car family who drives a new pickup truck and minivan and trades in every five years can expect to spend roughly three-quarters of a million dollars on their cars in their lifetimes.
So why do we assemble a team of professionals to buy a house and then spend weeks or months agonizing over our decision, but dedicate little more than a Saturday afternoon to buying a car?  This guide is meant to help bridge the gap between the seriousness with which we tend to take home buying and car buying.  It’s meant to make an important financial decision easier, but it is just a simple guide.  When you’re done, be sure to talk to Destinations Credit Union before you head to the dealership.  We can get your loan secured, walk you through the buying process and make sure you walk onto the lot ready to hold your own with whatever slick salesperson greets you. 
Question:  Why am I buying a used car? 
Answer:  Maybe you’re not.  Some people only want to buy new cars. New cars have time left on their warranties, can be customized to exact specifications of the buyer and help reduce uncertainty.  If those are important to you, you might be willing to spend the extra money to buy a new car.  Grab a copy of Consumer Reports’ 2016 car buying guide, or pay the $6.95 for a one-month subscription. Consumer Reports is generally fantastic and its car guide is still better than anything you’re going to find online for free.
Buying a used car is a much better value for most people, however.  Few products lose their value faster than a car, whose value plummets the minute it’s driven off the lot.  Maybe buying dinner at a fancy restaurant loses its resale value more quickly than a new car, but little else does. Buying a one- or two-year-old vehicle can save thousands of dollars off the sticker price of a vehicle, but even buying a used version of this year’s model can be a windfall, because someone else has paid for the initial depreciation once the vehicle lost its new car smell. 
Question:  How do I know if a used car is in good condition?  I don’t know much about cars. 
Answer:  Even if you know a lot about cars, you should take it to someone who knows as much or more about cars as you do.  You’re not going to be objective, because your bias toward a car you like (or your desire to just be done with test drives) will lead you to overlook flaws that a neutral observer will not. Dealerships will usually let you take a used car to a mechanic you trust, which is your best bet to make sure the car is in good condition. 
Question:  What if I’m not buying from a dealer?  What if I’m buying from a friend or off of Craigslist? 
Answer:  If, for some reason, you can’t take the car to a mechanic – which should make you skeptical – or if you want to find out about a car before you meet up with the seller, ask for a CarFax report.  They cost around $50 and will tell you about all sorts of things you’ll want to know.  Many sellers will foot the cost of the CarFax, because they can still use it for the next potential buyer even if you don’t buy the car. 
Question:  Anything else I can do to protect myself? 
Answer:  No matter if you’re buying from a dealer, a friend, your pastor or the reanimated corpse of Henry Ford himself, you should always take a car for a test drive.  Find a route that simulates your morning commute; don’t just go on the route the dealer wants to take you. Take some left turns.  Accelerate to freeway speeds.  Ride in the back seat for a while.  Make sure you actually like the car before you spend thousands of dollars on it.
There are few feelings worse than writing a sizable check every month for something you resent.  Just ask anyone who’s paying off student loans but not using their degree.
The first part of buying a used car is not the most fun, that’s for sure.  It’s all about research and preparation.  If there’s anything we all hate more than driving around to used car lots, it’s homework.  But this is the best way to make sure you get a car you’re going to love for a long time, which means the more time you put in now; the longer you can wait until you have to do it again.  

In our next installment, we’ll go over the negotiation process, including everything you could want to know about financing.  If you’re planning to buy a car this weekend, the most important thing to know for now is that you’ll want to come see us about our auto loans before you go to the dealership. If you’re looking to research a particular model, our AutoSmart buying service may help. It can save you hundreds or even thousands of dollars to talk to us first.  You can find our rates and apply online here.


Investing In Your Career

When you think of your investment portfolio, you probably think of stocks, savings and maybe a few other financial products you own or things you’re planning to use for buying a house, fund retirement, or to keep yourself protected.  What you might overlook is the investment you’ve made in your career. You’ve invested time in your career, and if you’re still paying off student loans, you definitely know you’ve spent money on it as well.  Just like any other investment, your career has risk and return.  If you want to get the best return on your investment in your career, then here are a few tips that can help: 

Get a degree.  If you haven’t finished college, you might have found yourself bumping up against a glass ceiling.  You can finish your degree online, often in a short amount of time and without spending a ton of money.  If you’d rather go back to school in person, talk to us about student loan options.  

Get an advanced degree.  It’s no surprise that the average income goes up with each advanced degree that individuals earn.  If you’re looking to advance your career, consider using one of our loansto finance an MBA, which is useful in virtually every field. 
Build your brand.  More and more, career changes and advancement can be built through the Internet and social media.  You can work on building your personal online brand or get training and a certification in all sorts of software and design to help others build their brand, making money in the process.
Learn another language or another culture.  There are very few job skills as portable as language and communication.  If you find yourself out of a job, knowing another language can help you get that next one lined up. Understanding different cultures makes it easy to move if the next job is across the country or even elsewhere in the world.
There are a lot of ways to invest in your future, but the one we tend to overlook is spending money to develop our jobs.  Unless you got in on the ground floor of investing in Google, you’re probably never going to find an investment that pays you more over the course of your life than the one you’ve made in your career. Don’t neglect it.

International Credit Union Day

It’s time for International Credit Union Day! Every year, this is observed on the  third Thursday of October, like a Thanksgiving that comes a little early. Also like Thanksgiving, International Credit Union Day is a time to be thankful for the shared history of people coming together to make life better for their community. International Credit Union Day doesn’t require buying presents for anyone or making costumes for the kids. You also get the added benefits of avoiding family rifts and not having to clean a kitchen. As your credit union, we will still set you up with a bunch of gifts, though.

Question:  Why do we observe International Credit Union Day?

While we might take the idea for granted today, credit unions haven’t always been around.  There was a time when money was controlled by a few very wealthy individuals, who could then decide who would receive loans and at what rate to pay or charge interest. They essentially had unilateral control of local economies without much fear of competition.  Basically, the economic outlook of 19th century Europe looked an awful lot like the megabanks of the 21st century with less regulation, less responsiveness, and a greater slant in favor of a few oligarchs.  It may seem difficult to believe, but not that long ago, the big banks were even worse for consumers than they are now.
We celebrate this day to remember that people taking control of their money is a radical idea.  Loans let people create businesses, innovate technologies, better themselves through higher education or protect themselves from financial disasters.  Competition from credit unions brought bank rates down, forcing the big guys to play on an even field with the rest of us.  When communities came together to control their money, it meant that citizens didn’t need to worry about angering some irritable local banker, because one powerful person couldn’t control an entire economy.  We may not have school plays about it and we may not spend all day cooking a turkey to remember it, but International Credit Union Day is also a time when people realized that the best way to make it through a long winter was to work together.
Question:   How did those first credit unions help?
Farming has always been a business that lived close to the edge – one bad season could kill a family farm.  In 19th century Europe, even with the Industrial Revolution in full gear, most small towns needed the agrarian part of their economies as a means of existence.  In parts of Switzerland and what is now Germany, a bad drought hurt local farmers, threatening to put the bulk of these towns out of business. Local banks throughout the region were reluctant to provide loans to the farmers, even though that money was desperately needed to keep their farms and farming communities afloat.  As if that wasn’t bad enough, food prices skyrocketed because of the same drought, making bankers less confident in lending money to the people who most needed it.
The first credit unions formed during the 1850s and 1860s, founded by Franz Hermann Schulze-Delitzsch and Friedrich Wilhelm Raiffeisen. Providing bridge loans to local farmers helped alleviate the immediate problem, but as members of these credit unions saw how much good they could do, the idea spread quickly and credit unions swept through Europe, providing aid to the rapidly developing industrial sectors of Europe’s burgeoning economies just as it had helped to buoy the agrarian sector.
It was a fertile time in Europe and the world at large, for new economic ideas designed to address the needs of a new industrial workforce; but even as Karl Marx, Friedrich Engels, and their colleagues have been swept into the dustbin of history, credit unions are thriving.  The credit union movement offered people the chance to control their success, protect themselves from disaster, and do so without revolution, violence or sacrificing the benefits of capitalism and meritocracy.
Question:  How do we celebrate?  I’m ready to party!
Well, of course you’re ready to party!  Who doesn’t love to read up on the Industrial Revolution and the benefits of community-backed economic growth?
There’s no wrong way to celebrate International Credit Union Day, which is why the 200 million credit union members world-wide all celebrate with their credit unions differently. While we will have a small celebration in the lobby, we, at Destinations Credit Union try to celebrate every day by providing the best products and services and by helping educate you on your finances.
See some of our many blog posts on topics of interest, and follow us on Twitter and Facebook to keep up on the latest information about your money and how to manage it.

The Google Drive Scam Is Back. Why Do We Share Our Info With Strangers?

In July, a group of phishers used Google Drive to lure unsuspecting people into offering up their personal information. This month, a similar scam involving the online employment service,, surfaced using Google Drive as its front.  Isn’t particularly fancy – if you’re a regular reader of this space you’ll know the most effective scams rarely look like the last half hour of “The Sting” or “Ocean’s 11” – but it has been effective.

The scam works by creating a false job offering for which applicants share their resume in the hopes of scoring an interview.  Unfortunately, there is no job. They’re just phishing for data.  The more recent version creates an application on Google Drive, which is shared with the victim, who enters their information manually and often gets malware or spyware in return.  The newer version still steals information in the most low-tech way possible: by getting the victim to fall for a lie. But it also includes the high-tech angle of the malware or other malicious scripts, which can scrape the victim’s computer for data in the future.

Google is working to improve its SSL security (a high-tech security protocol whose weakness is the source of this scam), and has been doing so for most of the year.  The ugly secret regarding the tech giant in 2015 is that, at the same time they’ve been setting records on Wall Street – including the largest single-day jump in a company’s value in the history of the universe – they’ve had real problems with their technology.  In addition to the weakness of their SSL protocol, they’ve sworn to fix the bugginess and slow speeds of their Chrome browser, which was once the definition of sleek speed. They also were publically called out over the summer for the cataclysmic failure of GMail’s spam filter, which was letting significantly more spam through while also marking legitimate messages for deletion.  Those failures, coupled with the unpopular new user interface on several of their iOS products and some bugginess complaints regarding Inbox should leave most readers concerned.

If you can’t trust Google, who can you trust? 

More important than this specific scam or Google’s rough 2015 is the larger question the Google Drive scams have raised.  We regularly share more information online than would normally be prudent, and we often take for granted that a large company must has security that’s top-notch.  We might think back to a customer service issue and assume that a positive experience with one branch of the company reflects positively on the whole operation.  But what do we really know?  Here’s a quick rundown of things that might scare you:

Think about all of the information on your resume.  Does it have your contact info?  Your home address? How much information could be gleaned from it, particularly if a scammer were to place that information next to any other information you may not know they have?  How many times have you shared your resume online?  It may be time to make your resume more secure.

Do you sell on eBay?  Buyers can request the listed email and delivery address for sellers once they make a bid.  If you list a high-value item and your home address is listed, what’s to stop someone from breaking into your home and stealing it? You’re not using your work email, are you?  What’s to stop a buyer from using that address to tell your boss about what you’re selling or raise a complaint about how you handled a transaction?

Are you on a dating website?  Hopefully, the Ashley Madison hack was enough to convince you to protect your data and be careful what you share with strangers.  Unfortunately, most of the conversation around the hack focused on the tawdry details about the site, suggesting a more traditionally moral site could never be hacked.

Remember, Christian Rudder, the founder of OKCupid, wrote an entire book about how valuable the data you provide them is.  His thesis was that he had better data about your behavior than all of the scholars writing about human relationships, because you were honest.  In interviews, the founder of Ashley Madison said the same thing:  No one will be honest about sex or infidelity, so only they understood us with our guards down.  How much is our romantic data worth to scammers?

It’s important to think about what you put online and how you can reveal less of yourself.  It’s also important to make sure you protect yourself if your identity or data gets breached.  If you think you might have been the victim of a scam or online data theft, let us know immediately so we can help you get things back to normal.  The sooner we know, the sooner we can protect you.  You can call us at 410-663-2500.

The Financial Lessons Of Donald Trump

Over the last 30 or so years, only a handful of people have entered pop culture simply because of their wealth. We know Warren Buffett, although he’s more famous for investing than he is for being rich.  Bill Gates is famous for being rich in many ways:  He’s referenced online in various scenarios revolving around the mathematics of his wealth — people calculate how much money he’d have to find on the street to make it worth his time to pick it up.  But Bill Gates is rich because he co-founded Microsoft and his philanthropic efforts ensure he will be remembered forever in a way that someone famous solely for being rich would not.  Therefore, there are only a couple of pop culture figures who truly are famous because of their riches:  Paris Hilton and Donald Trump. 
This article is about the financial lessons of famous individuals, so we’re going to ignore Paris Hilton, if only because the first rule would be “be born rich” and rule two would involve sacrificing every part of your humanity for fame.  Trump, however, is currently running for president of the United States, and the reason he has become part of the national conversation about the most important office in our country is the notoriety he has earned in the last 30 years for being rich.  So, what lessons can we learn from Trump’s personal biography that can help the rest of us reach our goals? 

Stick to your guns – Whether you plan to vote for him or not, Donald Trump’s career has been trending up for nearly three decades.  Not every famous person can run a reality show, not every reality show goes on to become incredibly successful, and even fewer can turn their reality show notoriety into a political career.
Trump attracts attention and popularity by speaking in bold declarations, whether that’s on TV or during political debates.  He sticks to his guns by following a path that only he can see.  How many commentators thought he wasn’t serious about the presidency?  How many still do?  You don’t have to agree with him to understand that absolute certainty is a kind of charisma, and faith in oneself is an absolute necessity to getting rich.  How many great ideas have you had but never followed through on?  What about that great business idea you never pursued?  That project at work that you couldn’t sell to your boss?  Even when you’re wrong, believing in yourself carries a lot of gusto. 
Use someone else’s money – Trump, like many of the other famous-for-being-rich celebrities, was born with money.  In fact, just about every article about Trump’s money discusses the idea that he started with money and still had to file for bankruptcy, as if that were a sign that he’d made a mistake. In this country, we have a complicated system designed to assess risk and defray those risks throughout our system, which rewards risk takers and minimizes the negative outcomes of a mistake. Bankruptcy is sometimes viewed as part of that process, which is why so many European countries have modeled their bankruptcy procedures after ours.  We’re not suggesting you go bankrupt or put yourself in such a position.  Instead, we’re suggesting that Trump took a calculated risk using loans and investments to speed up the growth of his real estate business.  Understand your risks, and don’t be afraid of them.  Use loans and investments, not your savings. Loans – when handled responsibly – can help you start a business, increase the value of your home or go back to school. If you wait until you can afford it, you may never get there.  Let us know what you want to do, and we’ll find the loan that will help you get it done. 
Accept your limitations – Donald Trump continued to call for Barack Obama’s long form birth certificate long after the rest of the country was satisfied with the president’s documentation. When he offends people, he doubles down instead of apologizing. Perhaps nowhere does he teach us the lesson of not accepting limitations better than his hair.  Like many men of a certain age, he’d be better off bald than trying to hide his hairline. 
First, it might be time for an honest look in the mirror.  Second, it’s time to identify your strengths and play to those instead of compensating for your weaknesses.
Don’t be Donald Trump’s hair.  If you take nothing else from this article, maybe that should be it. You need an honest friend who can tell you you’re not hiding your weakness and help you figure out a better solution, like a trip to the salon. 
Whether you need help supporting your million-dollar idea, a loan to build up your investment in your home or an honest friend who can show you where your portfolio is weak, let us know.  We’ve got professionals ready to help. 
Please note:  Destinations Credit Union does not endorse any political candidate as an organization.  The intent of this article is to look at personal financial issues.

10 Facts About Credit Unions

In preparation for International Credit Union Day, October 15th, we thought we would share a few facts about credit unions. Being a member of a credit union is a coup for your finances for many reasons. Here are just a few facts that make credit unions a great option. 

Fact #1: President Roosevelt signed the Federal Credit Union Act in 1934 to promote thriftiness and prevent usury during the Great Depression. 
Fact #2: Credit unions are insured. Most credit unions are insured by the National Credit Union Administration (NCUA), which provides essentially the same coverage on funds as does the FDIC. If the word “federal” is in the name, they are insured. If not, check with your credit union. It may be state-chartered and/or have private deposit insurance.  Destinations Credit Union is chartered by the state of Maryland and Federally insured by NCUA.
Fact #3: Eligibility is fairly flexible at most credit unions. Most require residency in a certain community, city, or state, or that you are employed by the credit union’s sponsor company, also known as a Select Employee Group (SEG). But requirements are pretty broad on most, making eligibility at a credit union a possibility for almost anyone. 
Fact #4: Credit unions are not-for-profit institutions and are owned by the people they serve, not by a few shareholders. 
Fact #5: Credit unions can offer better rates on savings accounts, lower interest rates on loans, and little or no fees on accounts because they return their profits to the member/owners.
Fact #6: The credit union’s board of directors, which is elected by members, can set loan limits in an effort to help the credit union grow. 
Fact #7: Credit union members have democratic control of the credit union and can attend and participate in regular and special membership meetings. 
Fact #8: Nonmembers benefit from credit unions too. Competition for low rates keeps banks’ fees in check, thereby benefiting nonmembers. 
Fact #9: With more than 5,000 credit unions across the globe and access to tens of thousands of ATMs, credit unions are increasingly convenient on a national scale.  Destinations Credit Union is part of a national shared branching network, giving you access to your accounts all over.

Fact #10: Once you are a member of a credit union, you stay a member for as long as you maintain your deposit account (share), regardless of whether or not you continue to meet the original eligibility requirements.

It’s Almost Halloween, So Let’s Talk Christmas

Football has begun, the leaves are changing and the kids are back in school. Clearly, it’s time to start thinking about Christmas.  Some of you are reading this on your phone while waiting in line at Starbucks, preparing to buy your first Pumpkin Spice Latte of the season, but it’s time to start thinking of peppermint mochas instead.  Even if you’re the “Bah, Humbug” type of person who regularly posts Facebook rants about the neighbors putting up their lights before Thanksgiving, making financial plans for the holiday is still a really good idea.  It might be too early to hang a stocking, but it’s never too early to sock money away.

Question: How much will I be spending on the holidays this year?

Answer:  Recent studies have pegged the price of the holidays at roughly $300 per child, while one in 10 shoppers admit to spending over $500 on gifts for their children.  Overall, Americans spent about $600 billion on Christmas last year, which comes out to around $2,000 per person. This includes decorations, hams, ugly sweaters, and whatever else you tend to buy.  That’s a lot of money.

Question:  Ugh.  Why are we even talking about that money now? It’s not even Halloween!

Answer:  Halloween is exactly why we should make plans now.  Since 2005, American spending on Halloween has spiked.  Last year, we spent about $7 billion on Halloween, including $350 million on costumes for our pets!  It’s easy to overspend in October, let that lead into an indulgent Thanksgiving in November, and then find ourselves putting all our Christmas spending onto a high-interest-rate credit card.  Planning ahead is a necessary step to prevent you from a holiday hangover in the New Year.

Question:  How bad is it to put Christmas on a credit card?

Answer:  It might be worse than you think.  It’ll cost you about $200 per month to pay off an average Christmas debt in time for next year if using a typical high-interest credit card. And if you don’t pay it off by next year, you’re suddenly trying to pay off two holidays at once. That’s bad news.  Even if you think you can handle the extra debt load, remember that the Fed just raised rates, and it may do so again. Whenever it does, you can expect your credit card bill to go up.  On top of all that, paying around $400 in interest charges and fees over the course of the year is still $400.  That’s probably enough money to turn your average Christmas into something worthy of a televised Christmas special.  If you have to use a credit card, make sure it’s a low rate card like your Destinations MasterCard.

Question:  Is it too late to get ahead for this year?

Answer:  Not at all.  You have a lot of options to save yourself from your own spending.  You can sign up for a Holiday Club account, a High Yield Account or a variety of other plans.  But that’s not the only approach.  You can also get ahead of the rate hikes by moving all of your credit card debt into a home equity loan (check out our rates) or signing up for one of our low-interest credit cards.

But even all those options don’t represent all the various ways to save money. Remember that Christmas spending doesn’t have to be an all-or-nothing proposition.  You can combine savings, credit cards and budgeting to attack the holiday from several angles.  Start now, and by Christmas you’ll have a well-stocked war chest, or in this case, toy chest, to give you a variety of options.

Question:  What about the holidays between now and then?

Answer:  Between Halloween and Thanksgiving, Americans spend around $150 per person on average, which is far more affordable than Christmas. But that can still add up quickly, especially in larger families.  It can also be difficult to tighten the belt at this time of year, because it can mean less candy and less family time for the kids.  If you’re worried about this spending, one way to rein it in is to make a combined holiday budget you pay into every month.  Figure out how much you plan to spend on birthdays, holidays, anniversaries and the like, then divide that by 12.  That’s how much you need to put away every month.  Does that sound like a lot of money?  Then you can cut down all year long.  Maybe you don’t need to send birthday gifts to as many people or your anniversary can be a smaller occasion this year. The bottom line: If you start planning ahead, you can keep your holiday spending from being an obstacle to your financial future.