We’re not huge fans of seeing stores selling Christmas decorations in July, but maybe they are on to something. Have you planned how much you will spend over the holidays and (more importantly) will you stick to that budget?
Holiday spending usually costs people more than they realize. In a consumer survey, more than 65% of people acknowledged they had not budgeted their spending (MagnifyMoney.com; Second Annual Holiday Debt Survey, 2017). It was reported that new credit card debt for 2016 was just over $1,000. If, instead, you were to save that $1,000 each year and invest it in an account earning 7% over 20 years, you would have a nice chunk of change --about $42,000. This isn’t an actual investment, but merely an illustration of the power of regular savings and compounding rate of returns. It does not take fees, expenses and taxes into account which would lower the return.
There are many costs to the holidays that you need to plan for––travel, food, gifts, and holiday parties. Here are a few tips to avoid adding new, or shall we say “naughty” debt:
- If you are flying for the holidays but haven’t booked your tickets yet, do it now! The closer the holiday gets the more expensive the rates generally are, and try to travel on off-peak days as much as possible.
- Shop early to avoid overspending on last-minute gifts or shipping charges.
- Talk to friends and family members about setting dollar limits on gifts; they may be as relieved as you to keep spending within reason; not to mention reduced stress.
- Get creative. In lieu of exchanging gifts, give the gift of time spent together to create memories that last. How about a family “Escape Room” adventure this year?
Think back to your best holiday memories. For most of us those moments involve laughter and togetherness, NOT an expensive gift. Make your family traditions about the annual family football game, the crazy card tournament, a day of volunteering together. The most meaningful and memorable things in life are more often experiences, not material items.
If you must spend using credit cards this season make sure you use your lowest interest rate card, and plan to pay it off quickly. Always pay your minimums to avoid fees and negative marks on your credit score, which is based on five different categories––amounts owed, new credit, length of credit history, credit mix and payment history.
Maybe this is a good time to look at your financial priorities. How much are you spending, are you maximizing your retirement planning, do you have a college investment fund growing for junior? Don’t let the season of giving derail your plans for the future. Life’s a journey––navigate it wisely!