They happen every year, but the holidays nevertheless can spring up on us and take a big chunk out of our savings.
It’s a vicious cycle: You try to scrimp and save all year long, but unexpected costs arise and leave you with credit card debt every January 1. So you vow to do better for the next holiday season, only to wind right back up where you started.
According to a new holiday spending survey by Morning Consult commissioned by Personal Capital, most Americans find creative ways to afford the holidays. Of the 2,200 survey respondents, more than one-third (38%) reduce leisure purchases to afford holiday spending, and 19% put less money into their savings.
Overall, at least 60% of people said they take some kind of financial action to prepare for increased spending towards the end of the year. Younger generations are most likely to take action, whereas older generations feel less financial strain.
Here’s a look at how Americans move their money around to afford the season of giving:
11% invest less money
19% put less money into savings
7% reduce retirement contributions
9% hold off paying off existing loans or credit card debt
38% reduce leisure purchases (e.g. eating out, day trips, other non-essential purchases)
10% reduce or stop charitable contributions/donations
40% none of these
It’s perhaps a good sign that older Americans have learned over the years how to anticipate the holidays better with every passing season. About 61% of survey respondents over age 61 said they take none of the above actions—however it’s also possible that these people are actively withdrawing from their retirement accounts and therefore aren’t contributing regularly anyway.
If you’re wondering how to get off the merry-go-round and better anticipate the holidays, let’s take a look at advice from Personal Capital’s own Michelle Brownstein, a CERTIFIED FINANCIAL PLANNER and senior vice president of the Private Client Group.
In Personal Capital’s Holiday Season Survey findings, Brownstein gives three tips on how to shop in 2021.
For starters, plan on reducing your expenses this year. You won’t be alone, as most people (54% of Personal Capital’s survey respondents) expect to cut costs to around or below $500.
Brownstein recommends using the 50-30-20 rule to identify your maximum amount of holiday spending. She writes: With the 50-30-20 budget, you assign all your household income to one of three main categories of expenses: needs (50% of your income), wants (30%), and savings (20%). Holiday spend can go into the “wants” bucket, along with entertainment, eating out, vacations, recreation and hobbies.
If traveling, book on days with a reputation for being cheaper. Tuesdays and Wednesdays are known for being the best days to book flights (compared to the weekends).
And as for gifts, go for heartfelt quality gifts that are easier on your wallet but more memorable. Buy locally, when possible, to avoid high shipping costs, and track your spending with an easy money-management tool on your phone or on the internet.
Finally, watch out for clever financing methods, such as buy-now-pay-later (BNPL) loans. Millennials and Gen Zers are the most likely to utilize BNPL loans and monthly installment plans — likely due to their increased confidence in their future financial standing. However, amid a year when we all are cutting back and remembering the important things in life, there’s no need to put pressure on yourself to stretch your budget further than you can afford.
Compassion — even for yourself — is free and may be the gift we’re all hoping for this year.
The Bottom Line
Budgeting your money is just one part of your overall financial plan. You can take a few actions now to get yourself on the right track.
Download Better Financial Life, an actionable guide with insights from fiduciary financial advisors. The guide is free.
Sign up for the Personal Capital Dashboard. Millions of people use these free and secure professional-grade online financial tools. You can use them to see all of your accounts in one place, analyze your spending, and plan for long-term financial goals.
Consider talking to a fiduciary financial advisor for more detailed guidance on your money management strategies.
Author is not a client of Personal Capital Advisors Corporation and is compensated as a freelance writer.
The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. Compensation not to exceed $500. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.