Dave Sather writes a column about financial issues for the Victoria Advocate.

With the end of the year just over the horizon, we are madly scrambling to buy presents, chauffeur kids and get the house ready for guests. As such, the last thing on your mind is, “How are we doing financially?”

However, now is a good time to assess where you were, where you are and where you are going. To help you, follow through on these suggestions:

  • Set a firm holiday budget with a limit for each person. Get the upfront cash necessary to fund this and then stick to it. Otherwise, you’ll be tempted to put the purchases on a credit card, which will snowball at 26% interest. Pre-funding with strict limits prevents the Holiday Hurricane from wreaking havoc upon your life.
  • Once a year, update your Net Worth Statement. List your assets and liabilities. Be as honest and conservative as possible. That car you bought last year is not worth more than you paid for it, and that painting over the mantel is not a Rembrandt.

Construct a second net worth statement that only uses your liquid assets. This removes the temptation to embellish and will give you a very functional viewpoint into how strong and flexible your household is.

  • Stick to the reverse budget. The first “bill” you pay should fund emergencies. Set aside nine months of living expenses that can be accessed with zero volatility and used within 24 hours. Your second “bill” should be your retirement. At least 10% of your pay needs to go into retirement. Sorting your bills in this manner helps you save first. Once you have set aside the savings component, then the remainder can be spent on the rest of your life. As such, you can logically determine how big of a house or car you can afford or whether you can take a trip next month without sacrificing savings.
  • Debt is an investment decision. Sit down and assess your interest rate, payment and term. Logically start knocking them out one at a time, starting with the highest interest rates. It is virtually a mathematical certainty that carrying a balance accruing interest at 26% is a bad idea. Pay your credit cards off every month. Remember, no matter how bad things get, you can’t go bankrupt if you owe no money.
  • Downsize your life and identify what your American Dream looks like. Look in the mirror and determine how much house you really need. Do you need a new car or will a 4-year-old “broken-in” car do the trick?

Regardless of what we have been told over decades, a house is not a good investment. Rather, it has negative cash flow with many big-ticket items that break at very unfortunate and unpredictable times. There is nothing wrong with renting.

A new car depreciates 40% in the first two years, but the average car on the road today is 11 years old. If you buy a 2-year-old car, you get it for 40% off sticker price but still have an average of nine years left in that ride.

  • Maximize your retirement. Contribute enough to get your employer’s match; it is free money. But don’t stop there. Fund your retirement plan up to its limit and then add a traditional or Roth IRA for you and your spouse. Funding retirement can lower your current taxes, grow your wealth in a tax-deferred manner and provide protection from creditors.

Your retirement fund is for retirement. It is not to borrow against to buy a new truck and bass boat.

Plan to live a long time. Social Security will not fund many of your needs. As such, be in a position to self-fund these things.

  • Sleep on it. Very few good financial outcomes arrive from making fast decisions. Whether you are looking to buy a new outfit, a watch, a car or a house, don’t make impulse purchases. Instead, be disciplined. Do your research and make informed decisions. After a week or two, see if you really want that item.

Dave Sather is a Victoria certified financial planner and owner of Sather Financial Group. His column, Money Matters, publishes every other week.

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