Seasonal Weight Gain

The holidays are upon us yet again, a time of year filled with friends, family, celebrations and an abundance of food. The end result? The average American will gain approximately eight pounds between now and New Year’s Day.

Unfortunately, there is another type of weight gain that also happens this time of year, one as difficult to shed as those extra holiday pounds. I’m talking about the additional weight added to our credit card balances as we party our way through the holidays.

We all know that preventing weight gain isn’t exactly rocket science. To keep off the extra pounds, we know we should exercise more and watch what we eat. Financial weight gain is no different – we need to save a little more and spend just a little less.

So how do we prevent added financial “weight” on our credit cards? Like exercise, it’s all about discipline. Some of you may remember the old “Christmas Club” accounts that local banks once offered. The truth is there was nothing magical about these ventures, they were simply forced savings accounts. By saving a little each month, come December you had a lump-sum of money to buy holiday gifts with. A similar approach will help you avoid credit card shock next year. Here it is, in seven and a half* steps.

1.	In January, after all the dust has settled, your credit card statements have arrived, and you’ve regained consciousness after the shock of your increased card balances, add up what you spent on gifts, decorations and entertaining.
2.	Adjust the number from Step 1 up (or down) based on what you would like to spend next Christmas. This is your target for next year.
3.	Divide next year’s target number by 12 to calculate how much you need to set aside each month to reach your target.
4.	Establish a separate savings account specifically designated for holiday expenses.
5.	If you are an employee, have your human resources department set up a direct deposit for the amount you came up with in Step 3. If you are self employed, simply direct-deposit from your checking account yourself. We find that most people, after a few weeks, don’t notice the money that’s being diverted into the savings account.
6.	Now, the tricky part: Stick to your budget you established in Step 2.
7.	Pay your credit card bills IN FULL when they arrive in January.
*7½.	The added benefit of this approach is: With your seasonal financial weight under control, you can spend more time at the gym.

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Fed Cuts Rates Yet Again

After a week of market chaos, culminating in the fire sale of Bear Stearns, the Federal Reserve announced today that it was cutting its key interest rate, the Federal Funds Rate, by ¾% to 2.25%, the lowest rate in 5 years.   In its statement announcing the cut, the Fed cited the continued downside risk to the economy, suggesting it might be open to cutting rates further if necessary.   The stock market responded positively, even though many experts thought the cut would be a full 1%.   This rate cut is positive for many consumers in that it will lower the rate on things like Home Equity Lines of Credit and variable rate credit cards.  While you won’t see the results immediately, by the end of next month, the lower rate should have trickled through to your statement.  If you’ve been thinking about refinancing your home or you’re looking to buy, now might be the time to pull the trigger.   The flip side to this rate cut is that you’ll see the rate you get on your savings and money market accounts drop and the weakening dollar will increase the cost of imported goods to increase, so expect high gas and commodity prices to stay with us for a while.