November 2021 E-Newsletter: Avoiding a Holiday Financial Hangover
Jonathan M. Gardey, MBA, CFA®, CFP®
President and Chief Executive Officer
Avoiding a Holiday Financial Hangover
I bet you never thought you’d be getting advice from your financial advisor on how to avoid a hangover! But, this newsletter isn’t about the kind of hangover you get after having one too many glasses of bubbly that can be cured with a few Ibuprofen and a long day of suffering. This is the kind of hangover that can have a far more injurious and lasting impact long after the damage has been done. We’re talking about a Holiday Financial Hangover.
What is a Holiday Financial Hangover?
The holiday season is typically filled with events, memories, and feelings of good cheer that can cause people to become a little too loose with their holiday spending. Going over budget can quickly get out of hand—especially since Amazon and home delivery services make spending so convenient.
But fast forward a few weeks past the holidays when the credit card bills start rolling in and you may start feeling a bit queasy about how much you spent. This is known as a Holiday Financial Hangover and is the gut-wrenching aftermath of overspending during the holidays.
Holiday Overspending Can Be Linked to Our History and Psychology
Overspending during the holidays isn’t just a matter of increased “wants or needs,” but is often rooted in psychology. The holidays carry deep and emotional connections for people that trigger behavior in one direction or another.
When it comes to gift-giving, for example, it’s not always just about checking items off a list. It’s about finding a material way to represent a feeling or relationship, which can be difficult if not impossible to do. Of course, this doesn’t stop many of us from trying and oftentimes overspending to try and achieve an end result or express an emotional feeling.
Or take holiday events as another example. Many of us may feel obligated to recreate (or outdo in some instances) experiences from our past based on positive or negative memories surrounding the holidays, even if doing so falls outside the lines of our budget. When it comes to these emotional ties, the easiest corner to cut is financial so individuals tend to overlook and overspend.
The following five points discuss ways to avoid that Holiday Financial Hangover.
1) Develop a Personal Awareness
Being aware of the emotional connections attached to your holiday spending can help you rein in your “wants” and stay within budget. If your parents always served stone crab claws and endless rounds of Veuve champagne to the entire neighborhood on Christmas Eve, but these luxuries aren’t in your budget, ask yourself what about that experience was most memorable. Was it actually the stone crab claws or the Veuve, or the way everyone dressed up and gathered together the night before Christmas to laugh and spend time together? Many times, we can recreate the positive aspects of these emotional ties without breaking our budget and paying for our impulsive decisions for months into the New Year.
2) Create a Sustainable Budget
There are two ways to approach your holiday budget and the way you choose will depend on your cash flow availability. You can either (a) begin with your maximum budget in mind and break it down into spending categories, or (b) build out a list and assign a numerical value to each to get an estimated total.
a) Beginning with the Total in Mind
Before you begin adding items to your Amazon cart and clicking that “Buy Now” button, decide what you have to allocate as a whole for your holiday spending. Then, you can break the entire budget down into categories, allocating how much will be set aside for each category. There can be a category each for gifts (further broken down into spending amount per person), events, charity, wardrobe, travel, etc…This approach is especially beneficial for those whose cash flow is less flexible.
b) Estimate Small Expenses and Add Them Up
The second way to approach holiday spending is to begin by listing out each expense and putting a desired spending limit or estimated cost next to each line item. After you add up the total, you can decide whether the total amount is more or less than you are comfortable spending. You can then go back and adjust the line items to land where you ultimately want to be.
3) Align Your Budget with Your Values
Writing out a budget helps you identify where your values are. Is it more important for you to spend the money to travel to see family? Or to stay home and buy more expensive gifts for your children? Where you spend ultimately reveals what is most important to you. What does your holiday budget reveal about your values?
4) Give and Take
Even if holiday spending doesn’t have much of an impact on your overall financial picture, it’s always a good idea to check and see where superfluous expenses can be cut to temper the scales. If you know you’ll be spending more during the holidays, consider limiting other luxuries that are part of your normal routine.
5) Leave the Credit Cards at Home
Once you have your spending total allocated on paper, consider moving those funds into a special account from where you will begin spending your holiday funds. This makes it easy to keep track of what has gone out already and what you have left. Then, leave your credit cards at home. If you don’t have access to the extra credit line at the store—when emotions are perhaps running high and you’re tempted to overspend—not having access to your credit card can give you a buffer of time to decide if you really want to go back and make that purchase.
What to Do Now
Think about holiday spending as a pendulum. As you spend over the holidays, the pendulum is raised higher and higher. The higher the pendulum is raised, the further back in the other direction it will fall. What does this mean for you exactly? Overindulgence now can lead to your having to be tight with your finances to recover in the New Year. Are the more expensive gifts or holiday outfits worth months of tighter cash flow in the New Year?
Whether your holiday shopping is already underway or you have yet to start, it isn’t too late to avoid a holiday spending hangover that could hurt your wallet long into 2022. Start by becoming aware of the emotions you attach to holiday spending and make a plan and a budget that accommodates for both your feelings and your future financial success.
If you are in need of a financial ally we encourage you to visit our site and learn more about our services. We best serve clients looking for exceptional client service and that value a long-term partnership and have minimum of $500,000 in investable assets.
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