By Ethan Brouwer, NSSA®, Associate Wealth Advisor
With the holidays right around the corner, many people are starting to make their holiday plans; from planning get togethers, booking travel, buying presents, putting up decorations, and the list goes on. For many, this is a season of joy and thankfulness but it can also get expensive!
Americans spend around $1,000 on Christmas each year.* For many families, this can be a big financial setback as around 60% of Americans are living paycheck to paycheck.** One of our goals at Pinnacle Wealth is to be a guide for our clients; to build a financial foundation where everyone can enjoy holiday traditions and time with family & friends without added financial stress that can take away from the joy of the season or leaves you paying off debt in the months ahead.
Here are a few tips to help you budget for holiday spending:
Plan Ahead
The timing of the holidays is predictable. This gives us an opportunity to anticipate the costs and save throughout the year. Many Americans sacrifice their future financial stability by overspending during the holidays.***
Planning ahead gives you more time to think about gifts for loved ones, find better deals, and save all year long so you don’t experience a financial setback in November and December.
One idea is to open up a separate checking account to serve as a “holiday slush fund” where you build savings into this account throughout the year. Saving a smaller amount each month makes all the expenses of the season less daunting. But how do you know how much to save?
Categorize Spending
Take a look back at previous year’s spending to get an idea of where your spending increases each year. There are a lot of different areas that your spending may increase so start by categorizing areas that you expect to have higher spending. This helps you prioritize your spending to make it more predictable. Some common categories are gifts (don’t forget about gift wrapping supplies), travel (doesn’t have to be flights, but even increased gas bills or hotel stays), food and entertainment (hosting parties, bringing meals, fun outings), and decorations (Christmas tree, wreath, ugly Christmas sweaters).
Value Your Relationships
Take the time to write down or type out the people in your life that you want to give a gift to – relatives, friends, spouses, kids, your favorite delivery person, you name it.
Once you have that list, start assigning a dollar amount to each person. This will allow you to establish the limit you spend on each person as well as overall throughout the holiday season.
Automate, Automate, Automate
After you have looked at previous years spending, categorized anticipated expenses, and set a limit on gifts; you should have come up with a number. Now simply take that number and divide by twelve. That is what you have to save each month to be ready for Christmas in the coming year.
Thinking back to the earlier example of the “holiday slush fund,” I would set up an automatic monthly transfer from your checking into this slush fund. Once it is automatic, you don’t have to worry about it and it gets done.
As someone who has paid off more than $53,500 in debt, my passion is to help others tackle debt pay-off and building a healthy budget, financial foundation.
Regardless of the time of year, our Pinnacle Wealth team has built out a model to support people in their budgeting strategy. Not sure where to get started? We’d love to hear from you!
Sources:
*https://explodingtopics.com/blog/christmas-spending-stats
**cnbc.com/2023/10/31/62percent-of-americans-still-live-paycheck-to-paycheck-amidinflation.html
***https://www.lendingtree.com/personal/holiday-debt-survey/ #:~:text=36%25%20of%20Americans%20took%20on%20holiday%20debt%20this%20s eason%2C%20up,borrowed%20an%20average%20of%20%241%2C462
Ethan Brouwer is not registered with Cetera Advisor Networks LLC. The opinions contained in this material are those of the author, and not a recommendation or solicitation to buy or sell investment products. This information is from sources believed to be reliable, but Cetera Advisor Networks LLC cannot guarantee or represent that it is accurate or complete.
