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ECONOMY | 01.09.2024

What is January belt-tightening and how can you successfully deal with it?

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January is usually the most economically complicated month of the year for many families due to the well-known “January belt-tightening.” But what exactly does this term refer to?

The Real Academia Española defines it as a “period of financial difficulties that happens during this month as a result of extra spending over the Christmas holidays.”

January belt-tightening is an economic phenomenon that happens worldwide in January due to the extra money families spend in December during the holiday season, with Christmas gift purchases and the normal rise in prices as a result of inflation.

In addition, some payment obligations, such as taxes, insurance, or bills postponed in December begin to be due in January, adding more economic pressure.

How is the 2024 January belt-tightening looking for families?

Two metrics that can help us to answer this question are the CPI and the evolution of the household savings rate over the last year.

The Consumer Price Index (CPI) is the cost of a market basket for an average Spanish home. It’s a way to calculate the cost of living, taking into account the prices of various products, such as food, fuel, and others.

The index ended December with an increase of 3.1%, according to the National Statistics Institute (INE). This figure, which will be confirmed in mid-January, is good news to a certain extent, as it means that inflation at the end of 2023 was well below that of 2022 (5.7%) or 2021 (6.5%).

Salaries seem to be recovering part of their purchasing power that had fallen over the last two years.

The second indicator that should be taken into account is the evolution of the household savings rate. The INE shared data for 2023 showing that households were able to save 3.3% of their income. In 2022, for the same quarter, this savings capacity was negative, -2.3%.

Against this backdrop, Spanish households are beginning to be less weighed down by the cost of living and are slightly increasing their savings capacity. However, interest rates have increased throughout 2023, which means that families with mortgage debts linked to the Euribor are now paying more than in previous months.

As we can see, although there are grounds for cautious optimism, a good savings strategy is needed, especially at the beginning of the year.

How to successfully deal with it

Dealing with January belt-tightening is no easy feat, so having good financial planning is crucial. Here are some tips we recommend for successfully dealing with it:

  1. Expense estimate

The crucial first step to successfully tackling January belt-tightening is estimating how much you’ll spend before Christmas. As we’ve seen in previous articles, planning your finances all year long is a key tool. Create a detailed monthly budget that includes your typical expenses, savings, and possible emergencies.

  1. Plan your purchases and be wary of offers

There are a lot of offers and discounts this time of year aimed at getting people to spend money on things they may not need. That’s why it’s essential to plan Christmas shopping ahead of time so you don’t get carried away by temptation and end up buying too much. Prepare a list of gifts and a budget for each one. This will help you avoid impulse buys that could cause financial issues further down the road.

  1. How much did you end up spending this Christmas?

Once the holidays have passed, it’s time to make an honest assessment of what you actually spent this holiday season. Review your bank account and receipts and compare them to your initial budget. This can provide you with valuable information on where you spent more than planned, and it lets you see where you can improve and establish realistic goals for next year’s holiday season.

By understanding the causes, assessing past expenses, and planning in advance, not only will you be able to handle January belt-tightening, but you’ll also establish solid foundations for your future finances.

Dealing with January belt-tightening successfully requires a combination of financial awareness, planning, and strategic action supported by economic data.

The reasons we save change over the course of our lives, but doing so is always a necessity for all families.  Learning to save is essential, as we already saw in this previous article, because it allows us to create an emergency fund, settle our debts, invest, and plan in the medium and long term.

Financial systems offer various solutions that can help you save a certain amount over a set period of time or obtain a return on savings you already have. At MAPFRE, we offer both savings and investment advisory services, with plans that fit all kinds of profiles.

The savings insurance plans offered by MAPFRE, for example, are a simple, easy-to-manage process where you choose between a lump sum or small and regular contributions with the frequency of your choice. These plans allow us to build and plan savings to help us overcome any situation, whether it be January belt-tightening or any other unforeseen event.

At MAPFRE, we strive to bring you advice and tips because knowledge is a key tool for making good decisions.