Say Bah Humbug to Holiday Spending Regret

It’s easy to get caught up in the moment when holiday shopping. You want to find that perfect gift, and sometimes (a lot of the times) it can be expensive. You may put it on a credit card and out of your mind — it’s the season of giving, right? But then January rolls in, along with credit card bills, robbing you of holiday cheer. It doesn’t have to be that way. Here are three ways to head off the bah humbugs of January with a little pre-shopping strategy.

1. Review the Spending of Holidays Past

The 2017 Holiday Outlook from PricewaterhouseCoopers LLC’s latest survey reported that consumers will spend 6% more this holiday season. That’s $1,189. Tack that bill on to routine monthly expenses and the extra costs that always come at year-end (such as property taxes) — and you may find yourself channeling Ebenezer Scrooge. Help ease holiday financial stress by reviewing your own spending in advance.

Write down what you spent last year to give yourself a baseline. Was it too much? Now’s the time to adjust and make an actual plan for this year. It doesn’t have to elaborate with red, green and gold color coding; just write down who you’re buying for, and determine how much you’ll spend. Don’t forget to include expenses for cards, postage, gifts, food and outings. And, fine-tune until it’s an amount that works for your budget.

Kyle Barclay, an Investment Consultant with American Century Investments, routinely shares this advice with his clients. He recognizes that creating a holiday budget may not be on the top of your wish list, but a plan can help you stay on track without loading up credit cards — or worse, dipping into retirement savings. If you don’t usually budget, this is a great time to start. Your wallet will thank you.

2. Start a New Tradition

The holiday season is full of stories about gift giving, and sometimes those gifts are different than the kind wrapped in a box with a frilly bow. Barclay says, “If your budget calls for less spending and you’re not sure how to adjust, think about giving in a unique way.”

The gift of time

Your time is valuable. Something as easy as giving your adult children a voucher for babysitting the grandkids can be a special treat for everyone involved. Or, gather family and volunteer to make food, collect needed items or other activities that your community needs.

The gift of education

Contributing to a family member’s education is another great substitute. Swap stocking stuffers for a $25 contribution to a 529 College Savings Plan. 529 plans allow you to save for higher education for your children, grandchildren or other loved ones (even yourself). They usually offer federal and state tax benefits, too. Another bonus: a 529 gift may provide joy longer than candy or small toys.

The gift for yourself

If you take the time to plan your budget in advance, chances are it will help reduce the temptation to fund overspending with retirement money.

It may be enticing to use retirement savings to pay for overspending, but this money isn’t just “another account”; these savings are meant to help sustain you through retirement. Withdrawing money from retirement assets can hurt you in a couple of ways.

  • Potential Tax Penalties

Unless your situation meets certain criteria as determined by the IRS, the penalty for withdrawals from a retirement account is 10%. Plus, you’ll have to claim the amount as income on your tax return — potentially affecting your tax bracket and your total tax bill.

  • Less Money to Ride Out Market Cycles

Barclay reminds clients, “Less money in your retirement accounts also means less to grow when the market is strong. This can make it difficult emotionally to stay on track when experiencing the market’s up and downs.”

Your goal is to avoid overspending, but saving money can be a bonus. Once you have your list and budget in place, look for deals for those specific items. If you come in under-budget, consider giving your future self a gift via an extra retirement contribution bump.

3. Checked it Twice? You’re Done

Once you’ve made your list, checked it twice and finished all your shopping, turn your attention to enjoying time with family and friends. Marketers will continue to entice you with deals; avoid the temptation of falling into the “one more gift” or stocking-stuffer trap.

Spend Time, Not More

A holiday spending plan gives you a blueprint for the year to come. But it’s not limited to holiday spending — it’s also a smart way to approach all your financial planning. Remember, it’s not a “pass or fail” approach, either. If you don’t hit your budget, don’t assume it’s a fail. The purpose of the plan is to track where you may be overspending to refine your habits or your budget. As you get better at it, you may eventually start to look forward to the new year.

Need help establishing a savings plan? Contact us, or find out more about investing for any goal.

Please consult your tax advisor for more detailed information regarding your individual situation.

Taxes are deferred until withdrawal if the requirements are met. A 10% penalty may be imposed for withdrawal prior to reaching age 59 ½.

The opinions expressed are those of Beth Allwood and are no guarantee of the future performance of any American Century Investments fund.

This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.