Millennial Money: How to recover from #Brokemas
Friday, 29 December 2017
OPINION: The holiday sales are upon us, everything is up to 50 per cent off store wide or at Briscoes, a further 10 per cent off from last weekend's sale.
When January rolls around you're going to be tempted to restart your gym subscription, give into summer sales, holiday sales, school sales.
But how can you continue saving after Christmas burnt a hole in your wallet?
Here's how you can curb the urge to buy into those new year, new you deals.
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Understand the power of compounding
Auckland University of Technology finance lecturer Ayesha Scott says millennials need to understand the power of compounding and never forget it.
Compounding is the interest that grows your savings balance over time.
If you leave that interest sitting in the account, it starts attracting interest all of its own. This interest-on-top-of-interest effect is called compounding.
By foregoing what you want right now and saving it for the future you will earn interest on it, and have more money in the future to spend on something you really need, Scott says.
'Whether saving is paying down debt or building an emergency fund, you will reap the benefits of that many times over in the future,' Scott says.
But compounding also goes the other way, she says.
If you get into debt by spending money you don't have you will end up paying for those shoes or that new device many times over by the time you pay off interest on that debt.
Avoid getting caught in the emotion
Financial advisor Liz Koh says people are plagued by the fear of missing out and advertisers prey on exactly that.
Are those websites you bought Christmas presents from now selling you advertisements for sales on those products on social media? Don't be fooled.
Just because it's the holidays and the weather is nice you don't have to spend money.
Koh recommends showing a healthy does of skepticism in life, especially towards advertisers.
'Be logical and don't get caught up in the emotion and letting retailers get to you . . . it's hard when you have temptations, but there is always another sale around the corner,' Koh says.
'I can guarantee you there will be another opportunity to buy that shirt if you wait.'
Beware buy now, pay later
Similarly, approach the buy now, pay later deals with caution, Scott advises.
Deferring some payment for the future can be dangerous if you are not disciplined about it.
They may be interest free, but if you fail to make a payment over those next 21 days, you'll be asked to pay extra fees.
There are always strings attached, Scott says.
'If you're someone who is inclined to spend that money instead of investing in it some place you'll get a return, then you're better off paying it up front.'
It's probably better to just wait those three weeks and accumulate the money to spend it.
Since this is a millennial column, I asked the financial experts for a hack.
Scott says, spend debit not credit. And Koh says, better yet, go old school and withdraw some cash to spend. It's a sure way to stop you from overspending.
Know yourself
New Year's resolutions are great, but ultimately the ones you succeed in are those that are realistic.
How likely are you to actually go to the gym this year after you paid for the whole year last year and went all of three times?
The key is to be honest with yourself and have a plan for your short and long term spending goals, Koh says.
But keep those goals attainable and achievable, she says.
'If you have a big goal without any short term goals you'll set yourself up for failure. Make your savings bite sized and have steps toward that goal,' she says.