How to Avoid these 5 Holiday Money Mistakes
It’s the most wonderful time of the year … to break those money habits we’ve been working to keep up all year.
“Money mistakes can be a topic for any time of year,” said Financial Planner Lauren Anastasio during SoFi’s member event. “But this is extremely timely because this is the time of year where a lot of people tend to throw in the towel.”
With the new year just around the corner, some of us find ourselves letting bad habits slide and decide that 2021 will be the year we tackle our credit card debt. Instead, we overspend on gifts, get excited about flash sales, and end up stretching our savings accounts thin.
Add to that an unprecedented year where holiday traditions may not look the same, and the time is right for many budgeters to make those holiday money mistakes.
In an exclusive SoFi member Zoom event, Anastasio outlined five of the common holiday money mistakes, as well as what shoppers could do to avoid overspending this year.
Gift Shopping Without a List
What happens when a person goes grocery shopping, hungry, without a list? Typically, they end up with a cartload of enticing snacks and a bill much larger than expected. It’s a classic case of the “eyes being too big for the stomach.”
That’s not so different from holiday gift shopping, explained Anastasio. When shoppers go gift shopping without a list, they can get swayed by sales and exciting products without even considering the price tag.
Instead of blindly shopping for gifts this season, Anastasio recommended putting together a shopping list of gifts. Write down the people you hope to buy gifts for and brainstorm what you want to get them before shopping. Doing a little legwork on the cost of gifts before you buy them will give you a better idea of the true cost of your holiday shopping.
Shoppers may be better able to avoid the flash sales and knee-jerk reactions to buy something unless it’s on their list. Before heading out (or heading online) this year, consider making a list of who you want to buy gifts for and how much you hope to spend.
In this unexpected year, holiday sales already started long before the traditional Black Friday. With retail spending uncertain, most shoppers are already awash in flash sales and holiday discounts. When a deal is time-sensitive, many feel pressure to buy immediately, leading to impulse spending that breaks the budget.
“Take a pause when you have an impulse to make a purchase,” Anastasio said. When you have something in your cart, resist the one-click purchase and step away from the computer.
Anastasio explained the time away can help reframe the spending. Instead of buying right away, call a friend, watch a TV show, or read a book—just do anything except clicking “buy now.”
Once the thrill of filling up the cart wears off, you can go back to the computer. “If you still want everything, that’s okay, but you can also remove items,” Anastasio said.
Taking some time to pause can help ensure you’re buying something you’re going to enjoy once it arrives, not just buying something for the rush you get when you purchase it.
Hand-in-hand with impulse spending is emotional spending, Anastasio explained. During a year where many are seeing their loved ones less, the emotion tied to a gift may be even stronger. You may feel tempted to overspend on a gift because you can’t be in person with friends or family. All these feelings swirl together, making it easier to overspend not only on others, but also yourself.
“When you want to buy something,” Anastasio reminded, “take a moment to reflect and ask,”
• Do I need this?
• Am I feeling emotional right now? Tired? Stressed?
• Am I looking to treat myself?
• How will I feel about this purchase in a week?
• Does this help me get closer to my financial goals?
Taking inventory of your feelings before buying something can help shed light on triggers around emotional spending. Taking stock of how you feel doesn’t mean you can’t still buy an item, said Anastasio, but it could help expose patterns and urges to spend that are tied to an emotional state.
Similar to impulse spending, taking a pause and asking “why” can help reduce spending purely out of emotion.
Going Over Budget
The holidays are a notorious time for overspending, but if blowing out your budget happens on a monthly basis, it might be time to create a new budget.
Anastasio explained that many budgeters end up overspending because “your budget is too complicated.” She’s worked with SoFi members who have monthly budgets made up of 40 to 50 line items, including tiny details like dry cleaning or fresh pressed juice.
That kind of minute level of tracking is time consuming and exhausting, especially for a budget beginner. Instead, Anastasio suggested starting with “higher level categories of spending,” like savings, wants, and needs. Smaller line items drop into each of these larger buckets, and you can allot how much you want to spend in each bucket based on income and goals.
Unlike a complicated budget, this allows every month’s spending to look a little different, which is totally normal, reminded Anastasio. “Your June spending will look different from December spending,” she said, because no one does the exact same thing month after month.
Making a budget simple will make it easier to follow and stick to. It also allows you to roll with the punches and adapt to changes that will inevitably happen each month.
In a time where things feel uncertain and stress is high, it feels really good to spend now, Anastasio admitted. In the moment, it can feel good to treat ourselves and spend now instead of saving for later.
However, this impulse means less savings for later and falling short of financial goals. “But we can work to reframe this thinking,” said Anastasio. “It does take practice, and it won’t happen overnight.”
What’s important is trying to identify what pulls you to spend now. Is it emotion, impulse, are you just naturally a spender over a saver?
Once you understand what drives you to spend now, it might be time to set a simple, attainable financial goal, such as boosting emergency funds or saving for a future trip.
“Reframe each action within the context of tha goal,” suggested Anastasio. You might think twice about an impulse online purchase when you consider that $20 could go towards your emergency savings instead.
It can also help to pay yourself first, Anastasio suggested. When money comes in, put money towards that financial goal first. Then, there’s less guilt around spending what’s left over.
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