We all know that holiday shopping can be a major money drain, but did you know that it’s not just planned expenses that may deplete our finances? It’s also impulse buys that we didn’t account for in our budget.
A new study commissioned by YNAB revealed that nearly all Americans (94%) partake in impulsive spending. The study also found that 68% of Americans said they are tempted to spend impulsively during the holiday season.
It’s one thing to buy yourself or someone else a little surprise treat now and again, but this behavior can be problematic when it leads you to break the bank or come close to doing so. The pressure really heats up around the holidays, when so many retailers are dishing out deals and tempting you to “add to cart,” be it online or in person.
This all prompts the question: “How can we really stick to our budget when it comes to holiday shopping?” A number of finance pros, along with an addiction expert, provided key tips. The best part? You can implement these tips all year long to stay financially healthy.
Make a Detailed, Realistic Budget
To combat overspending, finance experts recommend making — and sticking to — a detailed budget for the total amount you want and can afford to spend this season.
“Think carefully about what traditions or activities are most meaningful,” said Zach Bromley, a financial advisor at Broadway Graham Wealth Partners. “Prioritize your spending there, and scale back on more frivolous things.”
Holiday deals are already pouring in from various major retailers. By shopping early, you can elude some of the spending madness that can be caused by doing things in the final hour.
“Start shopping early and spread spending out over several months to curb the last-minute rush,” Bromley said.
Don’t Open All Those Retailer Emails About Deals
It’s wise to sign up for newsletters from retailers you love, as those can give you perks like coupon codes and announcements of newly dropped deals. But do you really need to open all these emails you’ll get? No way.
“Delete emails from retailers without opening them to avoid temptation from promotions,” Bromley said.
Keep Track of Your Credit Card Behavior
It’s all too easy to just throw everything you buy on a credit card and worry about it in the new year. Stick to the rules on this, and be mindful not to max out your credit cards.
“Aim to stick to the 30% rule — keeping your total credit card balance under 30% of your credit limit,” said Richard Barrington, a financial analyst for Credit Sesame. “Since credit utilization is one of the biggest factors that impacts your credit score, you may see your credit score drop if you accrue a higher balance.”
Be Aware of the Downsides of Retail Store Cards
Beware, retail stores may be extra aggressive this time of year in trying to lure you to sign up for their credit cards. They may even offer you major discounts on purchases if you sign up. This can be a trap.
“In general, the credit limit is often low, making it challenging to purchase several items or one big item because you can quickly find yourself over the 30% mark,” Barrington said. “In addition, opening a store credit card will trigger a hard inquiry. Both the high credit utilization and the hard inquiry could potentially lower your credit score. Oftentimes, retailer credit cards also have higher interest rates and could cost you more in the long run if you don’t pay them off in full.”
Pay in Cash
It may be a tough goal, but spend in cash instead of whipping out the credit or debit card.
“Rather than swiping or tapping with a card or app, doling physical bills makes us feel the financial impact more, thereby leading to more mindful spending,” said Mike Zaccardi, a freelance financial writer at Allio Finance.
Use Cash-Back Tools
Don’t forget about the plethora of online tools, including cash-back apps, that can boost the bang for your buck.
“Cards like the Bread Cashback American Express card gives you an unlimited 2% back no matter where you’re shopping over the holidays — including Walmart, Target or Amazon — which can help you maximize rewards,” said Andrea Woroch, a budgeting expert. “And, taking pictures of your shopping receipts now leading up to the holidays using a cash-back app like Fetch.com can earn you free gift cards to a variety of stores like Amazon, Target and Walmart to supplement the rest of your holiday gift budget.”
Discuss Expectations Around Gifts With Loved Ones
It is important to always be transparent about money with your loved ones. To honor this, have open discussions with loved ones about gifting ASAP so you can set realistic and financially sound expectations.
“Considering the amount of people living paycheck to paycheck, chances are your loved ones are feeling budget pressures this holiday season, too,” said Kendall Meade, financial planner at SoFi. “Rather than brushing it under the rug, talk to them about gifting strategies, price caps or if gifts even make sense.
“Discussing money with family can be awkward, but it is much better than racking up a ton of credit card debt and then stressing as you try to pay it back next year. For example, I have a pretty big family so buying gifts for everyone at Christmas is unrealistic. We decided to only buy gifts for the kids in the family then we did a gift exchange where everyone draws names for the adults. This meant everyone brings and receives one gift with a limit of $20.”
Let Sentimentality (Not Splurging) Be Your Guide
When you start to think of how much you cherish your loved ones and really zoom in on the aspects that comprise your unbreakable bond, you may be less inclined to shop, shop, shop. Instead, you’ll be guided by thinking about the little but special things you can give.
“You can purchase sentimental gifts on a frugal budget,” said Melissa Cid, consumer savings expert at MySavings.com. “Personalized photo mugs, magnets [and] tabletop photo gifts often go on sale for cheap online and at your local drug stores photo lab. It’s a great way to buy a meaningful gift on a budget.”
Understand That the Holidays Aren’t Really About Money; They’re About Memories
They say money can’t buy happiness. This is debatable since money can buy healthcare, groceries and cover other essentials like utility bills. But what seems somewhat certain is that money isn’t what makes holidays so special, particularly when it comes to gifts.
In other words, you can’t buy someone else’s happiness. And as much as retailers try to convince us shopping will make a holiday memorable, it’s just not true.
“The truth is we do not really need to spend so much to make the holiday memorable,” said Andrew Johnson, the general manager of Substance Abuse and Addiction Hotline. “It is important to understand that more, in the form of expensive and extravagant items and gifts, does not always spell memorable.
“Remember, the holidays [are] a time to show love to the people you love, and an even better way to show people you love and care for them is by giving them personalized gifts and choosing to spend your time with them. This way, you do not break the bank.”
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