Worst Financial Mistakes During Holidays

Welcome to the holiday whirlwind. With only a little time left until we ring in 2017, everyone is scrambling to get their work done, get the shopping done, presents wrapped, deal with that crazy Elf on the Shelf and prep for holiday time. It’s a lot to manage. And that’s why in all the craziness and excitement, it’s easy to overspend.

So what are the worst financial mistakes people make during the holidays? Here are three mistakes to avoid when it comes to managing your money through the holidays.

Getting a Raise or Bonus?

Congrats to you!

If you’re fortunate enough to get a raise or bonus, your first thought might be to spend it. Hey, you’ve worked hard all year, why not live a little? But don’t do it. Difficult as it may be, you should put aside at least half of any new money for your long-term goals, whether that includes retirement, a trust, helping a grandchild pay for college, paying the tax man, etc. Overspending new money is one of the biggest mistakes people can make. Keep in mind that it’s a lot easier to maintain a modest lifestyle now than it is to cut back later in life because you’re lacking funds.

I received a call from a tax planning client who has this sort of ‘success problem’. His firm is being sold and he is receiving a special six-figure bonus. His income is going to spike this year and so will his tax bill. Without a plan in place it’s pretty easy at this time of the year to splurge on gifts for the wife and daughters. Without setting aside more now, he could expect a pretty big hangover come April 15 next year.

Buying Like There’s No January

According to the American Research Group, the average American family plans to spend more than $900 on gifts alone for the holiday season.¹ On top of that there are parties, food, decorations, last minute purchases of ‘just in case gifts’ and tranportation. All told the average family probably pays out over $1,300 in holiday-related spending. That’s why creating a budget for the holidays is crucial. And it’s fairly easy to do. Just figure out what you want to spend overall, and put it on your smartphone. Then keep track whenever you’re buying stuff. But instead of adding everything up as you go, set a total budget and subtract as you spend. Seeing a balance grow smaller and smaller tends to keep things more real.

My wife is using an Android app to do just this. It helps organize the budget for each recipient and tracks the amounts actually spent. This is a great addition to our family.

Death by Plastic

There’s a lot of research that shows people tend to spend more money when they use credit cards. One of the most well-known studies, titled “Always Leave Home Without It,” showed that in certain contexts, people were willing to pay up to twice as much for the same item when paying with a credit card instead of cash. This is known as the “credit card premium.”² Of course using Amazon and other online sites can make it even easier to spend. That said, use cash whenever possible during the holiday season. And if you are online shopping, just mark it down against your budget.

The Takeaway – Remember What Really Matters

As December ticks by, try to focus on what matters most without being swayed by holiday shopping hysteria. Don’t forget what it’s all about—friends and family—not shiny gifts or things requiring lots of batteries. When you do spend money, as we all will, spend it wisely and don’t forget to keep track. Avoiding these common money mistakes will not only help you out for the long-term, but will also help you start the year with less financial baggage from 2016.

Don’t be haunted by Christmas past. Plan ahead and you can avoid these financial mistakes.

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