Between all the socializing and gift giving, it’s easy to go overboard and spend more than you should. Don’t make the following four holiday mistakes — avoiding them can help you can enjoy the season without busting your budget.
1. Tap Your Emergency Fund to Shop
A stockpile of cash is tempting during the spendthrift season, but you should keep your hands off your emergency fund. These savings are there for an unexpected expense that might creep up on your holidays and beyond.
You’ll kick yourself if you use this fund to afford flights back home, only for your car to break down suddenly and need an expensive repair.
In this kind of emergency, you can find a line of credit to help you cover an expense that exceeds the savings you have. This is true even if you don’t touch your emergency fund and it naturally falls short of a big repair.
If you need to open a new line of credit, make sure you borrow from a reputable lender that offers transparent terms. You need to know whether you can afford the cost of borrowing long before you apply, so you can determine if a line of credit is a practical solution.
2. Use Your Credit Cards Without a Plan
While a line of credit is best reserved for emergencies, a credit card is an everyday shopping companion. It gives you a safe way to shop online and earns cashback or rewards with every purchase.
That said, your credit card may be a temptation to overspend. Before you charge more money than you have on hand, consider how interest works. If you overspend, you may have to rely on the minimum payment for a while, during which time your balance will accumulate interest and finance charges.
These fees add up — you can throw in some figures to see it happen in real-time using this calculator — and you could be paying twice as much as you initially charged. Use the plastic in your wallet to limit this extra spending.
3. Shop Without a Budget
Making mistake #2 on the list is a lot more likely when you don’t enter the season with a budget. A budget is your game plan for the festivities, delivering you the black-and-white numbers on what you can afford.
Once you account for your bills, the cash that’s leftover is how much you have to spend on the festivities. For most people, the typical expendable cash from the month isn’t enough to cover all their seasonal spending, which is why they reach for their credit cards.
That’s why so many financial advisors recommend you save a little from each month throughout the year. Socking away $30 a month grows to an impressive $360 extra by December.
4. Cut Costs Where You Can
Financial hindsight is 20/20, so it’s not always easy to realize the value of long-term savings before it’s too late. You might be able to boost your spending powers without credit by cutting out other non-essential spending, like your usual splurges on takeout, streaming services, and more.
On the flip side of things, look at your list of to-buy items and see how you can lower their cost.
- Exhaust all coupon and rebate apps to snag the best deals.
- Brainstorm how you can give the gift of experience.
- Put your crafting skills to work and make the rest of your gifts.
Sticking to these tips may be hard, but future you will thank you when you start the new year without debt. Be patient and happy holidays.
