Holiday Hangover

SHOW NOTES

Buyer Burnout

• In 2019, holiday retail sales in the US surpassed the trillion-dollar mark (yes, 12 zeros), with U.S. households spending an average of $1,536 during the season (Fortunately).
  • To put that in a little bit of perspective, one trillion seconds is 32,000 years!
• We’ll have to see how these stats end up for 2020, but in 2019:
  • 3% of Americans who bought gifts set a budget for holiday spending… but only 64% of them stuck to it.
  • Nearly 20% of people surveyed opened some form of credit card.
  • 5% percent of people surveyed went into debt over Christmas
  • 7% of people who went into debt plan to pay it back with their tax returns, but almost as many have no idea how they’ll get out of debt.
    • (Stats from a study by The Ascent)
  • Feeling guilty about overspending won’t solve the holiday financial situation you’re in now or even stop you from repeating the same behavior next Christmas.

Damage Control

• If you put yourself in debt, drained your emergency savings, or borrowed from your retirement this holiday season, you’ve put your financial independence in jeopardy.
  • Take some time and reflect:
    • Why did you overspend?
    • What can you do this year to prevent being back in this situation?
      • If you don’t feel that you can spend less, think through ways to better prepare for the expense of the holidays.
    • Assess the damage:
      • In the study we mentioned earlier in the show, nearly 30% of people had no plan for how they would pay back their debts from Christmas spending.
      • The worst thing you can do right now is to hide from those unopened bills on your kitchen counter.
      • Take a deep breath, open them, and assess where the most damage occurred. Was it on dining out? Travel? Gifts?
        • Most banks and credit card companies will automatically organize your expenses into categories online, and knowing where your budget went off the rails will help you to identify how to adjust your spending moving forward.
      • Trim your budget:
        • Take a look at your monthly expenses and see where you can cut some costs.
          • This doesn’t have to be “goodbye” forever, just long enough to free up some cash and get you back on track.
          • Some ideas: Netflix, monthly fitness classes, coffee shop visits.
        • Consider trying a no-spend month.
          • You’d be surprised at how much you spend without even thinking about it.
          • A no-spend month can be a great way to save some money and gain perspective on your typical spending.
        • Increase your efforts:
          • Prioritize paying off debts and building back your savings.
          • Those credit card charges add up faster than you might think, and you may end up paying $50 for a pair of socks before you’re through paying off your cards.
          • Of course, the best solution is to pay off the balance of your cards right when the statement arrives, but that isn’t always a viable option.
            • Instead, try to curb enough of your other expenses (take from your “fun money” category first) to double-down on your payments each month until your holiday expenses are covered.
          • If your other bills and expenses are covered, consider using the upcoming stimulus check to help get yourself back on track.
        • Speaking of the stimulus check…
          • We can all agree that 2020 was an unusual year of extraordinary challenges.
          • How are we looking ahead for 2021? What economic changes do we need to watch for?
        • Join us for our upcoming webinar
          • With LPL Chief Market Strategist, Ryan Detrick
          • Tuesday, January 19
          • 6:30pm
          • Register Here

Plan for the Future

• Like everything else in your life, a little planning can make a huge difference in the outcome of your holiday spending.
• If you spent too much this holiday season, it’s important not only to have a plan for getting back on track, but to have a plan for the future, too.
• Don’t use resources that aren’t meant for the holidays
  • Your emergency savings should be for just that… emergencies!
    • Similarly, your retirement savings is for retirement, not for holiday gifts.
  • Just a heads up, Christmas will be coming around again this year (and every year after that)!
    • Something that occurs that regularly is not an emergency. It’s something you can plan for.
  • Set your spending budget now
    • Look at how much you spent this year.
      • If it was okay and just needed a little time to prepare, keep that number.
      • If it was too much, set your budget for next year at a more realistic number.
    • Keeping your budget in mind, you can shop throughout the year (so as to spread out your spending a bit) or save up through the year to cover your expenses closer to the holidays.
    • Don’t contribute less to retirement savings or emergency savings to devote money to holiday expenses.
  • Set intentions for the holidays in advance
    • When you plan for anything, it’s important to remember the why behind what you’re doing.
      • The holidays are no different.
    • Is your goal to spend money, or is your goal to make memories with your family?
      • It might be a balance of both. But you have to set realistic expectations and prioritize what’s important.
      • Is it worth it to sacrifice your financial independence for the sake of (often temporary) gifts?

The Bigger Picture

• In the grand scheme of things, overspending a little on one holiday one time probably won’t throw you majorly off track. BUT…
• Building toward the future you want starts with the decisions you make right now.
  • Don’t sacrifice what you want most for what you want now.
  • A habit of overspending can put your financial independence in danger.
• Really, when the dust settles and the holidays are over, often what people remember most are the memories made with loved ones (not gifts).
  • Financial independence gives you freedom of choice, but you have to work to get there.
    • You might be able to afford to spend more on gifts or a grand vacation for your family in the future. But if your decisions now don’t set you up for the future you want, you might end up constantly recovering from your holiday spending instead.
  • Without a plan, the future is just what happens to you.
    • The future can’t be what you want without planning for it. In some ways you can’t have a future without a plan; because all you really have is what you’re doing now and a hope that it all works out.
  • The future on your mind right now is probably, “What’s 2021 going to look like?”
    • While it’s good to think about all 2021 has in store, it’s also good to consider the longer term:
      • What do the next 10 years have in store?
      • Do I have a big life event coming up?
      • Am I nearing retirement?
      • Do I have a plan to provide myself income through retirement?
    • Shift your mindset about planning:
      • A plan is the manifestation of your excitement.
        • If you’re excited to make memories with your family and friends, plan to do so without the dreaded “holiday hangover” that could cloud those memories with feelings of regret or fear.
      • Consider what your plan allows you to do rather than what it restricts.
        • The whole point of a plan is to give you options.