The holiday season is one of the most wonderful times of the year, filled with festive music, visits with loved ones and, of course, eggnog. But despite all of the joy the holiday season brings, it can also be one of the most chaotic times of the year.
Between traveling to family gatherings and your never-ending holiday gift list, it can be easy to lose track of your spending and other tasks you need to complete before year-end. The National Retail Federation estimates that on average consumers will spend more than $1,000 during the winter holidays this year.1 So before the chaos hits — and before you swipe your card — sit down and develop a plan to ensure you end 2018 on a high note.
1. Take Broad Strokes
Make a list of everything you need to accomplish before the end of the year and detail how and when you’re going to do it. Hold yourself accountable by setting due dates for each task or breaking up tasks into different weeks to make accomplishing them more attainable. Your list could include everything from purchasing gifts and sending greetings cards to taking required minimum distributions (RMDs) from your retirement account and making a Roth conversion. It’s important to be diligent about working through your year-end to-do list and creating a realistic plan for completing necessary tasks. If you aren’t proactive, there is a real possibility that something may fall through the cracks while you’re caught up in the craziness of the holiday season.
2. Establish a Budget
Most holiday expenses are discretionary, which can make them hard to gauge when you’re developing a budget. However, budgeting your discretionary expenses can go a long way toward helping you rein in your spending during this often-expensive time of year. Determine a specific dollar amount you can reasonably afford to spend this holiday season — and do not go past that spending limit. Being disciplined will help you avoid impulse buying and suffering from buyer’s remorse when the winter holidays have passed.
This is also a great time to take stock of your financial health over the course of 2018 and start planning for the year ahead. What worked well in your budget? What expenses did you underestimate? Adjust your 2019 budget accordingly and head into the new year with a well-defined plan. The right budget is essential to both your current and future financial success.
3. Consider Your Cash Flow
It’s easy to just spend without care, watch year-end expenses flow out of your checking account and let life proceed as normal. But those actions do have consequences — you may deplete your cash reserves quickly. What is too low? A standard emergency fund, or “cash safety net,” typically has three to six months’ worth of nondiscretionary expenses in it. It can help you cover any unexpected cash needs that arise during busy times like the holiday season or the months following it. Explore saving vehicles at your local bank or credit union or use an online savings account to keep these funds highly liquid while still earning a respectable yield. Try not to use this money for holiday expenses in case you find yourself in an untimely personal financial dilemma.
Many shoppers don’t think twice about using high-interest debt options, such as credit cards or lines of credit, to fund their holiday purchases. While certain credit card companies offer “rewards” for holiday shopping or other specific purchases, understand that you will face a steep borrowing cost if you don’t pay these bills off completely. Use high-interest payment options with caution during the holiday season and be diligent about paying off the entire balance on time.
Before you pull funds from a long-term savings vehicle such as a brokerage or retirement account, you should seek professional financial guidance to fully understand the tax ramifications or penalties you may face. Running into cash flow problems around the holidays is not uncommon for some people, but it could be a sign that you need to work on reducing your spending — or increasing your savings — to avoid challenges going forward.
This is also an area where a personal financial advisor can be a big help. If you want to get a second opinion on your financial situation or start developing a comprehensive financial plan, contact a member of our advisory team.