KEY POINTS:
Draw up a budget and cut up your credit card - that will help keep your bank balance in the green over the Christmas break.
Sam Bejjani, general manager of financial management organisation enableMe, says the main reason people get into financial difficulty is that they think they have a surplus of funds but are actually spending more than they earn.
It is the general reluctance of New Zealanders to draw up a budget, coupled with the "cashless society", that are largely to blame for unnecessary debt, he says.
EnableMe's clients are warned of the pressure to spend over Christmas and New Year - be it on presents, more petrol or food for entertaining - so when drawing up a budget they need to be realistic, and ensure it reflects their lifestyle.
The shift of mindset that occurs when people sit down and draw up budget boundaries can cut out a large amount of unnecessary spending, Bejjani says.
If created correctly, the budget should provide a framework that allows the person to spend money on the things they want to and still have a cushion of cash left over at the end of the month.
Bejjani recommends people allocate a sum for discretionary spending and withdraw cash to use for this.
In many cases, the only reason people use their credit card is because they are spending more than they earn, he says.
EnableMe's studies show that when using credit, it is human nature to be willing to spend three times what they would if using cash.
"Plastic seems not quite real," he says.
Bejjani says these are simple money management concepts most people already know about, but they take discipline to carry out.
Retirement commissioner Diana Crossan says this Christmas is different to other years because no one is quite sure what 2009 is going to bring.
People should be acknowledging that and thinking long-term - and spending around Christmas is part of that, Crossan says.
She urges shoppers to avoid three mistakes this Christmas. The first is thinking the credit crunch has not affected them yet, and won't in the future.
The second is not understanding they can avoid the high interest on their credit card by paying the full amount they owe each month.
"Credit cards are very useful but if people are not paying the full amount off each month they can be very dangerous," Crossan says.
Often it is a good idea to put purchases on lay-by rather than credit to avoid paying interest, checking out all the fees on any finance deals, shopping around for a better deal or asking for a discount.
The third danger is to be worried about being labelled a "meanie" if you cannot afford to spend the amount friends or family members can on a present.
Crossan suggests families and friends come to an agreement on how much to spend on each person.
And for those who do get into financial difficulty, the Retirement Commission suggests talking to the bank about options for managing the debt. This may include using a loan, at a lower interest rate, to pay off your credit cards.
To help plan and manage your money through the festive season, use the budget, credit card and hire purchase calculators on sorted.org.nz or visit a budget adviser.
MANAGE YOUR MONEY
* Set a budget
* Know your credit card's interest plan
* Review your credit card limit
* Avoid temptation - leave the card at home
* Know the full cost of what you are buying
* Use lay-by rather than credit
* Shop around
* If you're in trouble, talk to your bank
* Use the Sorted calculators
