Don’t Derail Your Financial Plan with Holiday Spending

According to the National Retail Foundation, each American plans to spend $832.84 on gifts and other holiday items this year. Higher earners plan to spend even more – $1,304. Too often, these expenses are financed with debt or funded with money earmarked for other financial goals.

In today’s world, it is easy to equate a happy holiday with an expensive one, but the best gift you can give yourself and your family is financial stability. Consider these tips for managing your holiday spending so you can enjoy financial stability for years to come.

Avoid Common Holiday Spending Mistakes

During the holiday season, it can be easy to overspend on gifts, travel – or even food and drinks. When it comes time to pay for those expenses, you can be left with few options. This holiday season, avoid these common mistakes when paying for seasonal expenses.

Mistake 1: Going into Debt

Last year, more than a third of consumers financed their holiday spending – adding an average $1,249 to their debt. Of these borrowers, 62% used credit cards to finance their purchases and 23% used personal loans.

The sad reality is 82% of those with holiday debt won’t be able to pay it within a month. This means they will pay interest on their purchases. Interest expenses can erode your monthly cash flow and prevent you from meeting your savings goals. In addition, with credit card rates at their highest level since 1995, you could still be paying for this year’s holiday expenses when next year’s holiday season begins. For these reasons, avoid debt where possible this holiday season.

Mistake 2: Withdrawing from Retirement Accounts to Fund Holiday Purchases

While you can access the funds in some retirement accounts for holiday spending, you shouldn’t. You put these funds aside because you know how important it is to save for retirement – so don’t give up now.

There are also significant penalties for withdrawing retirement funds early. In a Traditional IRA or a 401(k), you could owe tax on the amount you withdraw plus a 10% penalty. For a Roth IRA, you could owe tax on any earnings you withdraw plus a 10% penalty.

Both debt financing and withdrawing from retirement accounts can vastly increase the total cost of your holiday spending. These mistakes can also prevent you from meeting your financial goals such as a successful retirement and balanced budget each month.

Tips for Avoiding Financial Strain This Holiday Season

Avoiding holiday spending mistakes will only get you so far. You also need to make advantageous decisions. Consider these tips for making the most of your holiday without jeopardizing your financial future.

Create a Holiday Budget – and Stick to It

Review your bank balances and decide how much you could spend without going into debt or sacrificing other goals. Then divide this amount between your friends and family to determine a per person budget. The most important part of this is – stick to the budget you make.

Include Non-Gift Spending in Your Budget

Gifts are not the only source of holiday spending. When you are creating your budget, also consider how much you typically spend on decorations, food, drinks, travel, and other holiday experiences.

Pay with Cash

If you have trouble sticking to a budget, consider using cash rather than a credit card to pay for your purchases. With cash, it can be easier to monitor how much you’ve spent and how much room you have left in your budget.

Use Low or Zero Interest Payment Options When Possible

If you must go into debt this holiday season, be smart about it. Services like Afterpay and Klarna will let you spread your purchases over several interest-free installments. However, these services can have hefty interest rates for longer-term financing. If you only need a few extra weeks to pay for a large gift, these services could help you avoid going into long-term debt.

Shop Around

If you have a particular gift in mind, check multiple retailers to ensure you receive the best price available. Many stores will even match a competitor’s lower price.

Consider the Retail Price of a Gift, Not the Discount

Retailers often give steep discounts around the holidays to encourage you to buy their products. While discounts can make you feel better about a purchase, it is also important to note the retail price of the item. If you find a gift for a price that is lower than retail, don’t succumb to the temptation to spend the savings on more gifts.

Manage Expectations

With prices for essentials like food, transportation, and medical care continuing to climb, it makes sense to cut back on holiday spending this year. Keep in mind that everyone is struggling with inflationary pressures, so if you need to spend less on gifts this year, your friends and family will understand.

Celebrate Frugally

There are many ways to enjoy the holiday spirit without breaking the bank. Consider crafts, music, baking, or just going for a drive to enjoy decorations. These activities can bring your family closer together and most don’t cost more than a few dollars.

Start Saving Early for Next Year’s Holidays

If you know that you usually spend heavily around the holidays, plan ahead. Set aside money each month so that holiday spending doesn’t sneak up on you next year.

An important part of your financial plan is managing expenses. During the holiday season, it can be easy to get off track. But if you manage your holiday spending, you can set yourself up for a successful financial future.

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At Brookstone Wealth Management, we focus on Financial Navigation Made Simple. Our advisors help you craft a plan for reaching your financial goals, then support you every step of the way. A part of that support is helping you avoid situations that could derail your financial plan – like overspending at the holidays.

Our proprietary wealth management program, Financial Fingerprint™, is a comprehensive financial plan that is quick to assemble, easy to understand, and simple to modify as your circumstances change. With Financial Fingerprint™, you are always aware of your financial position and the steps you need to take to reach your goals. Best of all, you also get a personal relationship with a financial planner who can answer your questions and help you avoid costly mistakes.

To get started with Financial Fingerprint™, contact us today.