Dear Readers,
Like many people, as the countdown to the holidays continues, you may be feeling a bit pressured to overspend. The season of giving -- and by association, spending -- can make it easy to just pull out the credit cards and buy. But before you give in to the impulse to buy those last few (and often unnecessary) gifts, step back and make some mindful choices -- choices that hopefully will help you begin the New Year on a more secure financial footing.
Resist the last-minute pressures of the season
Recently a friend shared a story about a family member who measured the success of the holidays by how many gifts were under the tree. The last few days of shopping would become a frenzy of thoughtless buying, just so the gifts would add up.
To help resist this type of pressure, think about what's most important -- the amount you spend or the thought one well-chosen gift expresses? As you look at your gift list, don't lose sight of your own values and your budget, and stick to both. In fact, at this time of year, it's more important than ever to stay on top of your budget because the bills you run up now will be there to greet you as you embark on the new year.
That's not to say it's always easy. According to a November 2014 Consumer Reports Holiday poll, seven percent of Americans are still paying off bills from 2013 holiday purchases. So while this is a time to feel generous and express gratitude, you also have to find ways to keep your generous spirit from overtaking your practical reality.
That's especially true when it comes to credit cards. Behavioral economists attest to the fact that people are willing to spend more for a purchase when they use credit. To curb the urge to overspend, you might consider paying for your gifts with cash.
And be realistic about just how much you can afford to spend on each person on your list. Setting clear limits for your spending will help you avoid that last-minute tug to hit the mall for just one more gift.
Spend -- and save -- year-round in keeping with your goals
Keeping a lid on holiday spending is just a small part of year-round financial management. To help put it in perspective, look at the bigger picture. What were your savings goals for the year? Did you meet them? Also think about whether you spent your money on the things that matter most to you. If not, now's the time to refresh and renew your financial commitments to yourself. For instance:
- Take a look at where your money went in 2014 and where you really want it to go in 2015.
- Review your monthly budget and make sure it's realistic (try using an online budget calculator to help). Are there areas where you consistently overspent? Were there a lot of unanticipated expenses?
- Reprioritize if necessary, making sure the things on your list of essentials are truly essential. Plan more specifically for the 'nice-to-haves' so they don't derail your budget.
- Take a comprehensive look at your debts -- from mortgage to credit cards -- to make sure you're not overextended. An industry rule of thumb suggests that no more than 28 percent of your pretax household income should go to housing debt; no more than 36 percent to overall debt. If you've exceeded these limits, it's time to make paying off debt a top priority.
- Also, look at your retirement savings. If you've let your savings slip this year, retirement should go to the top of your list for 2015. Up the percentage you're contributing to a 401(k) or IRA. If you're self-employed, consider opening a SEP IRA or a similar small business retirement plan.
A thoughtful review of the past year's spending and saving and a recommitment to your goals can be a valuable holiday gift to yourself.
Give yourself a less stressful New Year
Money worries aren't a once-a-year event, but the holidays can certainly bring them into focus. A little awareness now of what you spend, how and why you spend -- as well as refocusing on how much you can really afford to spend -- will help you resist the last-minute rush and avoid a stressful New Year of playing catch-up.
Most importantly, it will help you show your generosity to your friends and loved ones in a way that reflects your own realities and values -- and allow you to fully enjoy the spirit of the season. My very best holiday wishes to all of you.
Looking for answers to your retirement questions? Check out Carrie's new book, "The Charles Schwab Guide to Finances After Fifty: Answers to Your Most Important Money Questions."
This article originally appeared on Schwab.com. You can e-mail Carrie at askcarrie@schwab.com, or click here for additional Ask Carrie columns. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.
COPYRIGHT 2014 CHARLES SCHWAB & CO., INC. MEMBER SIPC. (1214-8323)
