Summer is the time to cut loose. Unfortunately, it can also mean cutting loose financially.
Those sunny months bring endless opportunities for traveling and socializing.
The biggest driver of summer overspending is the lack of a set budget for most things: holiday weekends, graduation parties, vacations, barbecues and family gatherings, summer camp, activities with the kids, and back to school shopping.
It’s common for families to go on vacation and use a credit card, thinking they’ll figure it out later instead of paying for it outright.
Bad move. “This leads to playing catch-up when summer is over and their regular income is not enough to cover the monthly bills plus the overspending from the summer,” said Whitney Ditlow, a financial advisor with Northwestern Mutual.
It’s tempting to use credit cards for vacation expenses to accrue awards, but personal finance website NerdWallet says paying off the balance before interest mounts up is critical.
Charging $1,019 to your card and then paying just the minimum each month instead of paying it off could cost $452 in interest, according to NerdWallet’s calculations.
Planning and budgeting are the best ways to combat summer spending. All households benefit from financial routine and discipline. It’s no different from diet and exercise, Ditlow says. After indulging on vacation, fall is a time to return to healthy eating and your usual workout routine.
Set your travel budget
Earn rewards without racking up interest charges by budgeting for summer expenses at the beginning of the year.
First, calculate how much you’ll spend on travel. Divide that amount by six (since travel is heaviest in the summer), and place that amount in your savings account every month, starting in January.
“The money in your savings account will earn interest throughout the year, giving your account a boost in anticipation of summer spending,” Ditlow said.
After a trip, you’ll be able to pay the credit card bills in full as soon as they arrive.
Wait it out
Try the simple 30-day rule to rein in spending. “Whenever you want to make a large purchase, wait 30 days to make sure it is a need rather than a want,” Ditlow said.
This method can also help you budget for the item if you do end up buying it after the waiting period if you use that time to stash the money.
If 30 days seems too long, wait one day for each $100 in purchase price. “If something costs $300, wait at least three days before you pull the trigger,” Ditlow said.
Use credit carefully
Avoid using credit cards for the majority of your purchases and make sure you pay more than the minimum balance each time. The smaller the balance, the less you throw away in interest each month.
Also, using cash makes it harder to overspend. “When you hand over physical money, it makes transactions a lot more personal, as opposed to swiping a piece of plastic,” Ditlow said.
Track your expenses
“The things that usually throw your budget off are those variables such as food, shopping, personal care and travel,” Ditlow said.
She recommends using a spending app to separate fixed costs and variable expenses.
If you don’t know much you spend, tracking is a great way to see problems taking shape instead of realizing you have overspent later.
Set checkpoints halfway through the month, so you can plan better and curtail spending. Once you have a better gauge of what you should be saving, set a system to start doing it.
Plan for rewards
If you want to sign up for a travel rewards credit card, you really need advance planning — at least five months before your trip, according to NerdWallet. This gives you the time to apply for and receive the card, earn the bonus and book the flight.
But use the card carefully and try to stick to your spending guidelines. About a third of Americans said in a Nerdwallet survey that overspending was a definite behavior they used to earn points or miles for a trip.