The pandemic has cast a dark shadow over the upcoming winter holiday season, but many are using their wallets to get into the holiday spirit – for better or for worse.
In spite of the uncertain status of employment, health, and limited options for travel and gathering with loved ones, Americans are carrying on with the holiday tradition of gift-giving and 1 in 4 have already finished their holiday shopping, according to a new survey from LendingTree.
“Because of the coronavirus relief bill, increased unemployment benefits, and overall reduced spending during the last six months, many Americans have a little more money in their bank accounts today than they otherwise would,” Matt Schulz, chief credit analyst for LendingTree, said.
But one financial expert cautions against going overboard because a surplus might exist in your household budget. Instead, it should be an opportunity “for people to get their financial house in order,” said Matt Carr, chief trend strategist at The Oxford Club.
“Accept and understand your own financial system situation and commit yourself to your own financial goals,” without allowing the holidays to derail them, Carr said.
Here’s how to do that.
#1 Make a game plan and create a budget
Starting as early as you can, planning for holiday spending will set you up for a season of healthy habits and hopefully less stress.
“A holiday shopping budget is a must, as is taking the time to make a list of what you plan to buy before you hit the stores,” Schulz said.
As a general rule of thumb, your holiday budget should be roughly 1% of your annual income, Carr said.
It’s a time of generosity, but not at the expense of your personal financial goals. Carr cautioned that it could end up hurting in the long run and “chances at a better retirement and financial independence.”
“Many people fall into the trap of overspending or over-splurging, that they feel this season is about being generous with their money,” he said.
#2 Rethink your all-cash plan
Certain personal finance gurus preach all-cash diets when the goal is to stick to a budget, but Carr said that advice is passé and in effective in 2020 because “increasingly more and more shopping is done online.”
If there’s a history of overspending and exceeding credit limits, Carr suggested spending only what you can pay off, tracking receipts, and abiding by his “golden rule” of paying the balance in full every month to avoid interest charges.
“I know that's not always feasible for everybody,” he said. “But realistically, the longer you carry that debt, the more expensive each of those items that you bought becomes.”
#3 Budget for incidentals
When creating a budget, it’s prudent to have a cushion for incidentals and accessories, Carr said.
Things like wrapping paper and bows can ratchet up costs, but so can the price to ship gifts. Holiday plans will undoubtedly look different in 2020 and in-person gift exchanges might not be possible, so estimate how much your parcels will cost to send to loved ones and bake that into the budget.
#4 Remember the ways you’ve already spent this year
2020 has shaken the structure of life with the absence of vacations, commuting to work, and dining out, so you might feel financially secure with a household budget in the black. However, try not to look at household expenses in a silo.
“This upcoming holiday season is a fantastic opportunity for everyone to refocus, get back to basics, and really think about what they and their family needs,” Carr said.
Understand that household expenses are a trade-off these days. A canceled gym membership might not offset the cost of your recent home renovation project or the monthly cash outlay for a better internet connection to support working and learning from home.
If you’ve already purchased additional laptops and furniture to support your child’s remote learning, remember that it probably didn’t come on the cheap and depending on the age of your child, that should be communicated.
“Boil that down for your children and opt for more important, more poignant gifts that they can use,” Carr said, “because you've already bought all of these electronics and they're already spending so much screen time because of school and that in and of itself is very tiring.”
Read more information and tips in our Spending section