Although many people’s finances are in a better position today than they were a year or two ago, this holiday season could still be tough. Holiday shopping can be expensive, especially if you have a lot of people to shop for.
If you’re not careful, your generous gift giving could be harmful to your finances. Given inflation and high interest rates, it’s important to have a plan in place before you head out to the stores to buy presents. Here are four strategies to consider for your holiday spending.
1. Have a budget and a plan.
To avoid problems in a year filled with inflation issues, you first and foremost need a spending plan. Take a closer look at your finances and determine how much you are comfortable spending this holiday season.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Sticking to a budget or spending plan will help you avoid falling into credit card debt or dipping into your savings to pay for gifts. If possible, I recommend creating a separate account that is dedicated to holiday spending. This will allow you to build holiday savings without harming your ability to pay for everyday expenses.
The more detailed your plan is, the better. Make a list of every person you need to buy for, what you want to buy for them and how much each item will cost. If you can, start shopping early. This will give you more time to spread out your spending and keep tabs on any items that may go on sale to save yourself money. Last-minute shopping is the easiest way to overspend and drain your finances.
2. Pay down debt.
Over the past few years, many of us have turned to our credit cards to cover everyday purchases, leading to sky-high credit card debt. Americans currently hold more than $1 trillion in credit card debt. Don't add to an already high credit card bill by breaking the bank with your holiday shopping.
Having a plan in place and starting early should include paying down debt where you can. First, get organized. It’s hard to tackle your debt if you’re unsure of what you owe. Take inventory of every credit card and figure out how much you owe on each. Once you know what you owe, make a plan for paying it off.
The avalanche method is all about tackling the debt with the highest interest rate first, and the snowball method focuses on paying off the credit card with the smallest balance first. Whichever method you choose, make sure you are paying more than the minimum and using any additional money to pay down other debts.
3. Use cash.
One of the best approaches to holiday shopping is to use cash instead of credit cards. You’re not adding any additional debt to your credit cards when you choose not to use them.
Once you know how much you're willing to spend on gifts, withdraw that amount from your bank account. As soon as you run out of cash, that's it! No more spending. This will ensure you don't bust your budget while holiday shopping.
4. Take care of yourself.
When you sit down to create your holiday spending plan, don’t forget about yourself. I don’t mean buying yourself an expensive holiday present like a new TV or smartwatch. I do mean continuing to put money toward your retirement.
Don’t stop planning for your own financial future just to spend money on holiday shopping. Keep putting money away in your retirement accounts, like a 401(k) or an IRA. I recommend my clients put away 10% to 15% of every paycheck, and that shouldn’t stop during the holidays.
The easiest way to ensure you’re not forgetting about your own finances is to put them on autopilot. By setting up automatic contributions, you avoid the temptation to spend that money the second you get your paycheck, whether that's on holiday presents or other spur-of-the-moment purchases.
Saving money during the holiday season may feel impossible, especially with inflation and high interest rates, but there are ways to ensure you don’t overspend. A financial adviser can help you create a plan, not only for the holidays but for a great financial future as well. Avoid any undue financial stress in the new year by keeping your holiday spending in check.
Drake & Associates is an independent investment advisory firm registered with the U.S. Securities & Exchange Commission. This is prepared for informational purposes only. It does not address specific investment objectives, or the financial situation and the particular needs of any person who may view this report. Neither the information nor any opinion expressed it so be construed as solicitation to buy or sell a security of personalized investment, tax, or legal advice. The information cited is believed to be from reliable sources, Drake & Associates assumes no obligation to update this information, or to advise on further development relating to it. Past performance is not indicative of future results.
Related Content
-
How This Vanguard Emerging Markets Bond Fund Outperforms Its PeersThe Vanguard Emerging Markets Bond Fund took a cautious positioning at the start of the year, which has helped it beat the majority of its peers.
-
New Rules are Shaking Up the Real Estate Market. Here's What You Need to KnowBuyers and sellers have more room to negotiate commissions, and that could reduce home prices over the long run.
-
Five Windows of Opportunity for Roth ConversionsWhen you convert a traditional IRA to a Roth IRA matters if you want to limit how much you pay in taxes.
-
Four Social Security Myths DebunkedWith so many headlines surrounding Social Security these days, what is fact and what is fiction? For instance, will the program really run out of money?
-
Can You List From Memory Everything That's in Your House?That's what you'd have to do if something happened to destroy it all. It's important to make a record of your belongings so you can be reimbursed by insurance.
-
When Should Retirees Consider a Donor-Advised Fund?Charitable giving in retirement isn't right for everybody. But in certain situations, a tax-efficient donor-advised fund (DAF) may be well worth considering.
-
Four Things to Know About Your Collectibles and Homeowners InsuranceIf you're crazy about collectibles, and your hoard is growing in value, you may need to consider specialized insurance to protect your investment.
-
This Trust Strategy Can Reduce Your Taxes Big-TimeUpstream basis planning can help younger wealthy people pay less taxes on highly appreciated assets if they appoint an aging relative as a trust beneficiary.
-
Three Major Estate Plan Mistakes to AvoidA complete and up-to-date estate plan can help ease your loved ones' worries and make things easier for them after you pass.
-
Which Type of Power of Attorney Is Right for You?Durable or limited? How about springing or military? There are many more kinds of POAs than just medical or financial.
