Finance expert issues warning against common Christmas payment habit that could cause long-term issues
If you're embarking on your Christmas shopping, you've likely felt the strain to splurge excessively, notes financial expert Eoin McGee.This often leads many individuals to choose to divide payments using various 'buy now, pay later' schemes. However, Eoin cautions that these schemes come with a catch."These schemes take 1-2% of the value of the purchase. They provide the customer with the money to buy. The customer usually pays 0% interest on the purchase if they stick to the plan."Things go pear-shaped if you breach the terms and conditions. If you miss a payment, there's a hefty penalty of fees. If you exceed the payment period, it can start to accumulate costs in fees or interest."Eoin also disapproves of the ease of access to these schemes, stating that if you can't afford to buy something outright, you simply can't afford it and shouldn't purchase it."Research by the CCPC showed the majority of people don't recognise buy now pay later as a loan. It's a loan, full stop," he told RSVP Live."Because people don't recognise that, they are more likely to take them out, and you have people with six of these payments coming out of their bank account at all different times of the month, potentially from various different companies. It becomes hard to manage and then they are more likely to start missing direct debits and other payments."Eoin advises individuals to be conscious of the amount they splurge on gifts. "Challenge yourself to remember three things you got for Christmas last year. Most people would struggle."He emphasises that Christmas should focus on spending quality time with loved ones rather than purchasing presents. "People will remember how they felt on Christmas more than material items."As we look towards the future, Eoin suggests that those wishing to improve their financial habits in the new year should be mindful of their spending.He recommends keeping track of your Christmas expenses this year. "Get a running total. Let's say it cost €1,000 for groceries, presents, nights out etc. From January onwards, put aside €100 a month so when it comes to December next year, you already have that money there."If setting aside such an amount each month seems daunting, Eoin encourages saving even a smaller sum as it's better than not saving at all. "Even if you still have to borrow, you will have to borrow less. Start to break the cycle."Unfortunately, short-term savings don't offer attractive interest rates, so where you save this money doesn't really matter, adds Eoin. "If you did want to research the best interest rates, ccpc.ie has handy money tools which allow you to compare them."If you're looking to make your money work harder for you, investment is the way to go, Eoin concludes."If you have money sitting there that you won't need in the next five years, you need to get it out of your bank account, credit union or An Post account and put it somewhere else."Don't use a short-term vehicle, like a bank account, to achieve a long-term goal, like a college fund for your children."Eoin emphasises the importance of investing due to inflation. "For example, if you put €10,000 into a bank account with a 0.5% interest rate and left it there for five years, ignoring tax with simple interest, that would turn into €10,250. You might think you 'made' €250."But if the product you wanted was €10,000 today and you waited five years until the money matured to buy it, assuming 2% inflation, that product would have gone from €10,000 to €11,000 in that same time."He encourages people to consult with a qualified financial advisor who can guide them in making wise investment decisions.If you're managing your investments independently, he recommends investing in a 'no brainer 60 40' portfolio, which can be purchased through your bank, insurance company or pension house. "60% of your money goes to shares, 40% goes to the bond market, spread across the entire world. It's just a way of investing, that's all it is."Subscribe to our newsletter for the latest news from the Irish Mirror direct to your inbox: Sign up here.
