Money Talks, So Should You

Q&A: Plan now to avoid a financial holiday hangover

Mechel Glass
by Mechel Glass, Dimespring Contributor  (@CredAbility)

We’ve just celebrated Labor Day and there are plenty of cool autumn days ahead. But it’s also time to plan your holiday spending so that any year-end expenses don’t derail your budget, as well as contributions to your savings and investments.

I know that many people spend impulsively and seek a short-term emotional around the holidays. Understanding these possible pitfalls can help you avoid a financial setback. And a few proactive steps can make the difference between a happy holiday season and one that you could be paying for well into 2014 and beyond.

READ: How to use technology to better analyze your finances

Here are five things that can set you back financially and steps you can take to avoid these problems:

Overspending on holiday gifts. Everyone always plans to spend less than the previous year, but it’s easy to get carried away when shopping for family and friends. The tough part comes later when you find yourself paying for gifts in January, February and even March. Make a list of the people you want to buy gifts for and create a budget that will allow you to make your purchases without overspending.

Opening new credit cards. The lure of a discount on your first purchase or a free gift might be appealing. But I want you to resist the urge to sign up for store credit cards. Besides having typically higher interest rates, opening up new lines of credit can have a negative impact on your credit score.

The lure of “the deal.” Retailers know that they will have to incent consumers to shop this holiday season, and while technology, consumer electronics and toys are all expected to be hot sellers, buyers need to be cautious not to let a “deal” cloud their holiday shopping plans.

READ: Paying cash can help you meet your savings goals

If you budget to spend $50 on your sister, don’t be tempted to buy that $100 item just because it is 30 percent off. Also beware of add-ons, such as warranty or replacement plans, “must have” accessories, or special financing options—these can all quickly add to the cost of your holiday gifts.

Shopping for yourself. While holiday sales can be a great time to make some planned purchases for yourself, be careful not to overextend your budget. Research shows that consumers often spend more than $100 on themselves during the holiday season. Take advantage of discounts on apparel, electronics, home goods and other items makes sense if you have it in your budget, but if you have to charge these items and pay for them over time, you will eliminate most of your savings.

Travel. Holiday travel can put a strain on even the strongest of family budgets. Go online early and often to get the best airfares and hotel rates.

READ: How to stay motivated to spend less and save more

Consumers should also consider the financial impact of any unplanned expenses around this time of year, ranging from car and home repairs to medical emergencies. Having an emergency savings fund will go a long way toward having a stress-free holiday season.

 

Mechel Glass is vice president of community outreach for CredAbility. She is responsible for coordinating community outreach and financial education activities across the agency’s regions and developing new education programs for both classroom settings and online. Glass, a U.S. Army veteran, is also co-author of “The Veteran’s Money Book,” scheduled for publication in April 2014 by Career Press. The book can now be ordered on Amazon.com.