Navigating Holiday Expenses in an Unpredictable Financial Climate
The past few years have been a whirlwind of financial uncertainty, leaving many of us hesitant to spend our hard-earned savings. This scarcity mindset is understandable given the volatility of the financial markets, with headlines about a looming recession further fueling the urge to hoard cash. So, how does a family navigate the holiday spending scene amidst this uncertainty?
Deep-rooted cultural norms push us to splurge on loved ones and indulge during the holidays. In fact, holiday spending has reached record levels in 2023, surpassing even past Black Friday records. In a culture where everyone seems to be acquiring the latest gadgets or booking extravagant vacation rentals, keeping up with the Joneses can feel like an impossible task.
With spending on the rise, concerns about liquidity persisting, and the cost of gifts increasing, middle-class shoppers are left wondering what to do. For many families, credit cards seem like the answer. While it's tempting to overindulge in the spirit of the season, it's crucial to be mindful of the financial consequences. With the Federal Reserve raising rates over the past year, compound interest, the "interest on interest," only worsens the situation. Over time, the accumulated interest on a credit card balance can snowball, making it increasingly difficult to pay off the debt.
It's not too late to adjust during this holiday shopping season. Here are some tips to help you manage your holiday spending:
Set a budget and stick to it. Even if you've already started shopping, determine how much you can afford to spend on holiday gifts. Create a list of gift recipients and set a spending limit for each person.
Pay off your holiday debt as soon as possible. The sooner you repay your debt, the less interest you'll accrue.
Don't compare yourself to others. It's easy to get swept up in the holiday shopping frenzy and feel pressured to spend more than you can afford. Remember, the holidays are about more than just gifts.
Looking ahead to 2024, instead of reacting to problems like credit card debt, proactively take steps to have the cash available when the holiday season rolls around again. Start a sinking fund and dedicate your savings to this specific purpose. Unlike a traditional savings account, which can become a dumping ground for miscellaneous expenses, a sinking fund is laser-focused on a specific goal. By setting aside a manageable amount each month, you'll have the funds ready to shop with intention without breaking the bank.
While starting a savings account may not be the most novel idea, the challenge lies in taking action. Here is your sign to get started. If you're reviewing your transactions and see that credit card interest is rising, take a few minutes now to set up a holiday savings fund.
Even better, open a high-yield savings account and take advantage of compound interest. That's right, the same mechanism that can snowball debt can also be an ace up your sleeve.
A high-yield savings account can be a valuable tool for managing holiday expenses and breaking the cycle of holiday debt. These accounts offer significantly higher interest rates than traditional savings accounts, allowing your money to grow faster. By opening a high-yield savings account early in the year and consistently contributing throughout the year, you can accumulate funds specifically set aside for holiday expenses.
Starting your planning process early means you can spread out your expenses over a longer period, reducing the financial burden during the holiday season itself. This approach includes buying gifts throughout the year, taking advantage of sales and discounts, and considering handmade or personalized gifts that are both thoughtful and budget friendly.
Remember, financial planning is not about deprivation; it's about empowerment. By taking control of your finances, you can create a more enjoyable and stress-free holiday experience for yourself and the important people in your life. If you want to learn more about how financial planning can help you get clear on your priorities, get in touch.
Stu Malakoff, CFP®, CDFA®, CPFA, CRPC® I President, Bend Wealth Advisors
CERTIFIED FINANCIAL PLANNER™
523 NW Colorado Ave. Ste. 100
Bend, OR 97703
bendwealth.com
Direct 541.306.4325
Office 541.306.4324
stu@bendwealth.com
Securities offered through Raymond James Financial Services, Inc., member FINRA / SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Bend Wealth Advisors is not a registered broker/dealer and is independent of Raymond James Financial Services. Any opinions are those of Stuart Malakoff and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. You should discuss any tax or legal matters with the appropriate professional.
Sources:
1.Picciotto, Rebecca. “Black Friday Shoppers Spent a Record $9.8 Billion in U.S. Online Sales, up 7.5% from Last Year.” CNBC, CNBC, 25 Nov. 2023, https://www.cnbc.com/2023/11/25/black-friday-shoppers-spent-a-record-9point8-billion-in-us-online-sales-up-7point5percent-from-last-year.html.
