By Paula Pant
Imagine this: It's Thanksgiving night. You've gobbled your fourth serving of mashed potatoes and green bean casserole. You've turned on the TV. The local news is reporting that hundreds of people are lined up in front of local stores to score items for steep discounts.
You wonder if you should join the masses. You'd like a new 60-inch plasma TV. And you wouldn't mind having a new set of Bluetooth-enabled speakers. Besides, your son has been asking for a new video game console.
Based on your current budget, you can't reasonably justify buying these items at full price. But if these were half-off, you could find the wiggle room for it.
Should you join the Black Friday sales?
Nope. Here's why:
If Your Budget is Super-Tight, Give Yourself the Gift of Wealth
First, a disclaimer: In this article, we're specifically addressing people who have a tight budget. We're talking to people who can't afford to buy the items at full price, which is the reason they're interested in Black Friday sales.
If that's your situation, then here's the harsh reality: You probably shouldn't be purchasing big-ticket discretionary items.
You're not buying prescription medication on Black Friday; you're buying electronics or toys. And frankly, you both can (and should) live without that. There are better uses for your money.
I can already hear the objections:
"But there's no way that I could afford this item at any other time!"
Yes, that's exactly my point. When money is tight, you're better off boosting your savings rate. Any money that you spend on Black Friday comes at the cost of your savings rate. In other words, you're spending dollars from your future.
"Why shouldn't I have a little fun and enjoy my life?"
This question implies that happiness comes from spending money. And that's just not true. If you think that happiness is the result of buying stuff, it's time to reframe some of your thoughts. Having fun and enjoying life comes from health, relationships, laughter - not from buying a new smartphone or handbag.
"But these are gifts I'm giving to others!"
If people love you and care about you, then they shouldn't want you to overextend yourself by spending money that you don't have. The purpose of gift-giving is to offer a small token of appreciation; this can come from a meaningful $5 or $10 item. Try giving handmade cards, cookies, or homemade "certificates" good for one afternoon of a backrub or babysitting. The gift of your time and energy means more than a flat-screen TV.
"My kid would never be happy with that. He wants a PlayStation."
The best gift you can give your children in the long-term is a secure financial future. Sure, he says he wants a PlayStation today, but that's temporary. When he's an adult looking back on his life, he'll understand that the most meaningful gift that you gave him was making contributions to his college savings account, or paying off the house so that you'd never be at risk of foreclosure, or saving for a downpayment so that you could move into your own home.
What Should You Do With This Money?
Here's what I suggest:
Figure out how much money you would have spent on Black Friday. Perhaps $100? $200? Whatever that amount, set it aside into savings. Then use this for one of four purposes:
1) Repay high-interest debts. If you're carrying credit card debt or other high-interest loans, use this money to make an extra payment towards that balance.
2) Build an emergency fund. If you don't have savings for emergencies, put this money towards creating that cushion. This emergency fund is money that you shouldn't tap unless you experience a huge crisis, like massive medical bills or a job loss.
3) Invest in a retirement account. Don't have a retirement plan at work? Don't worry. Eligible individuals can set up an Individual Retirement Account (IRA) for free through any brokerage like Vanguard, Schwab or Fidelity, and contribute up to $5,500 per year (or $6,500 if you're 50 or older).
4) Invest in a college savings account. Got kids, nephews, nieces or grandkids? You can get tax benefits for saving for their education through a 529 college savings plan or a Coverdell savings account.
When money is tight, every dollar counts. Don't spend money on discretionary items that will eventually turn into clutter and junk. Instead, give yourself and your family the gift of slowly building wealth - and creating a better financial situation - by saving that money instead. Use those savings to either repay debt, invest, or build your rainy day fund. Your future self -- and your grown kids - will thank you.