If you have been monitoring interest rates over the last several years, you may have noticed that rates don’t take a holiday during the winter months. The fourth quarter often sees a lot of activity with large movements in rates. After a sharp spike in the third quarter of 2013, rates have been trending downward, and even created a miniature refinance boom similar to 2012. For many people, this has renewed their interest in personal finances and made them more aware of Financial Seasons—both within their own household and within the broader economy.
As with all organic and complex systems, the economy goes in cycles. It ebbs and flows and follows a consistent, if unpredictable, pattern. We generally know what it will do, but we never know when it will do it. After the optimism of 2013, we’re now seeing more pessimism in the markets. Interest rates, consumer confidence, and business confidence all trended lower in 2013. Market data in the US, Europe, and Asia were mixed, and typical financial hotspots like Europe and South America either exploded or seem poised to. The world seems to be on the verge of something significant, although nobody knows whether that something will be good or bad.
Market-watchers pay close attention to consumer habits during the holiday season since this may indicate their mood for the entire next year. If they’re feeling more confident they will likely buy more. Early figures suggest holiday spending will be higher than last year, though a disappointing Black Friday—or Black Thursday, if we’re being technical—indicated consumers aren’t in a hurry to spend money. They seem both more confident and more cautious, perhaps because 2013 was good to them but they aren’t sure 2015 won’t disappoint.
This development—feeling confident while acting with discipline—is a very good development. It means people are taking the winter months as an opportunity to evaluate their own finances—to use it as their own personal Financial Season. For decades now, people have used the holidays as an excuse to go ballistic with spending. While this was never a good thing, it was less dire in years past when the economy was generally very good and people could easily recover from an imprudent spending binge. But now, people feel those massive Christmas bills for the rest of the year. It begins the year with the wrong tone—with bills that feel overwhelming and distract from other, more important financial goals.
For this reason, I recommend everyone do two things this holiday season. First, use discipline with your holiday shopping. Don’t go crazy with it. Although this is a hard thing for natural gift-givers to avoid, the immediate gratification of buying and giving a great present is not as important as starting the year on more sound financial footing. Second, use this firmer financial footing to address your other financial goals, like paying off debt or saving for a house. Starting the year with debt is discouraging and makes your other goals seem unreachable. But starting with less extra debt—or, ideally, no extra debt!—allows you to spend more energy and resources on other, non-Christmas-related financial issues.
As we move toward the New Year, it’s imperative to avoid the temptation of using the Christmas season as one last irresponsible hurrah. Start your New Years resolutions early! If your goal is to lose weight, resolve to eat less during the holidays. If your goal is to save money or pay off debt, resolve to spend less on gifts and frivolities. Done right, it may even allow you to go nuts next year without going into debt.
12-6-2014 Financial Seasons