Holiday Spending: Is a Budget on Your List?

Key Takeaways

As prices remain relatively higher and bank accounts tighter, many households have changed how they spend and save money, for holiday spending too.

How you handle holiday expenses can be a window into how you manage your overall financial plan. Want to start fresh? Financial Consultants Ryan Adams, Jimmy Merdian, Sarah Pedersen and Addison Tantillo give ideas for why and how to give yourself the gift of a budget now—just in time to check holiday gift shopping off your list—and throughout the year.

Track This Year's Holiday Spending

Even if you don't usually budget for the holidays, tracking your spending may be especially important to help stay ahead of inflation and the higher prices you’ll likely encounter. As you plan your purchases, the extra oversight might help you avoid loading up credit cards or dipping into your savings.

When you're done with your gift giving, entertaining and holiday-related traveling, take the time to record and evaluate your spending, even if it's just an estimate. Was it too much? Will it affect any planned purchases or regular expenses next year? How about your existing saving and investing plan—would you have done anything differently?

Then, consider how a budget—for next year’s holidays and your overall finances—might give you a different perspective on spending.

A Budget Equals Financial Control

Budgeting is a foundation for financial planning and a primary way you can affect your own financial success. You can't control the financial markets, but you can control how much you spend and how much you save.

Each dollar you save today has the potential to grow and compound over time. We're not suggesting canceling your gift-giving traditions! A gift here and there won't make much of a difference, just like daily fluctuations in the financial markets won't ruin your future.

But your total spending and saving patterns will set you up for financial success—or financial stress.

So how do you begin? Our consultants say it’s best to just start!

“Understanding where your money goes is a great first step in building financial freedom,” says Ryan. “Very often my clients are surprised by how much they spend on things like eating out, car payments and television or streaming subscriptions.”

Seeing your expenses laid out can bring clarity to your situation and easily help you identify areas for improvement. Plus, reducing unnecessary expenses can allow you to invest more for your future.

“So, the sooner you start budgeting the better,” Ryan continues. “You can choose to make small sacrifices today or be forced to make larger sacrifices in the future.”

How a Budget Supports Your Financial Goals

First, it's important to know what you're budgeting for—short-term goals like holiday spending or far- off goals like retirement or college. Our Future Value Calculator can help you determine how much to set aside for a long-term goal, and our other retirement tools dive into more specifics as you approach retirement.

1. Budgeting Basics

Armed with a clear vision of your goals and an estimate of the amount you'll need, examine your everyday finances.

• List your sources of income and subtract basic living expenses and debt payments.

• Compare what's left with the amount you've calculated for your goals.

• Evaluate how much you want to use for discretionary spending versus saving it for your future.

Some people think of budgeting as something that holds you back, but it might help to think of it as a spending plan. Addison tells clients, “Building wealth may not be so much about how much you make but how much you spend.” Here are other tips he shares with all his clients.

2. Saving Tips

We believe clients should have a plan for financial emergencies. Saving three to six months' worth of living expenses in a relatively low-risk vehicle, such as a cash equivalent account like a money market or bank account, can help you avoid dipping into your retirement money. Here are some ways to boost your emergency savings:

• Take steps to curb spending on nonessentials.

• Switch to cash for certain expenses to avoid the temptation of credit cards.

• Pay off debt to ensure more of your money goes to you rather than interest payments.

In addition to having the funds for an unexpected event, there are other benefits of having an emergency account. “Having savings of three to six months of living expenses can also help your financial state of mind for those times you may spend more than usual, like during the holidays,” says Sarah.

And when shorter-term investments are appealing, such as when interest rates are higher, you may also see some growth on your savings while still having a relatively low-risk investment.

Having extra savings will allow you the confidence to purchase gifts for loved ones with less worry. “Stick to that budget and it can be a happy holiday season for you and your loved ones!” encourages Sarah.

3. Investing in Your Future

Investing, rather than saving, has the potential to grow your money over time, generally at a greater rate than a bank savings account. But it also involves the risk that your investments will decrease in value during market fluctuations.

• Take advantage of your employer's retirement plan, including any matching contributions.

• Consult a trusted financial advisor to help find the right investment options for your goals, time frame and tolerance for risk.

• Consider automatic investments in other accounts. Small amounts each month can add up during your lifetime. And it can work for IRA contributions each year too.

“Sometimes making your maximum IRA investment all at once in December or April is tough,” says Jimmy. “Many investors find it easier to pay themselves first by making automatic contributions throughout the year and ‘dollar-cost average’ their purchase.”

Doing so may help reduce the overall impact of price volatility, potentially lowering the average cost per share, aim to prevent poorly timed lump-sum purchases and make reaching the maximum contribution threshold easier to manage.

This Year, Give Yourself the Gift of a Budget

Need help getting started? Contact us or find out more about investing for any goal.

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