If you find yourself feeling strapped for cash around the holiday season, you’re far from alone. Experts say that this is the time of year when most people are the least careful about money.
Dining out way more than usual
With the influx of holiday parties and family get-togethers, it’s normal if you find yourself sitting in more bars and restaurants than other months of the year, but it’s still important not to overdo it or you might have to resort to eating dollar meals come January. The best thing to do is to choose the commitments that are worth keeping and to say no to the ones that will push you over budget. It’s not easy to miss out on social situations, but your bank account will thank you in the long run.
Not making a list (and checking it twice!)
We all love to find the perfect package for our family, friends, and neighbors, but Lisa Greene-Lewis, CPA, TurboTax expert, notes that spontaneous gifts add up. “The average American shopper spent $882 on holiday gifts last year alone,” she says, which is why she recommends planning ahead for the special people in your life that you intend to buy gifts for.”By making a list, you can track your spending and who you’re spending on to avoid buying duplicate gifts and overspending.” Also, don’t forget about homemade gifts such as baked goods or a homemade craft like a photo album that can cost practically nothing and be even more meaningful.
Assuming you’ll save in January to make up for the spending
People spend in excess at holiday time and tell themselves they will be in a better position in January to pay off the bills, but of course, as Abby Eisenkraft EA, ATA, ATP, CRPC, CEO of Choice TaxSolutions Inc. in Melville, New York, explains, that doesn’t happen. “If you don’t have the money now, chances are you won’t have it January either and you will be facing bills you can’t pay,” she says. “It’s tough, but try to have the self-control to not dig yourself into a hole financially.” A great solution is to try a Secret Santa gift exchange, which ensures everyone gets a gift from a group of friends or family members, but not from every single member of the group or family.
Believing that current sale prices are unbeatable
Even before the start of Black Friday and Cyber Monday, stores are crawling with discounts and deals that leave their customers reeling to spend. Falling into this trap often only leads to increased stress and potential spending mishaps. Instead, Genti Cici, CFP, and founder and CEO of StandUp Advisors suggests stepping back and reminding yourself not to spend more than your means even if a bargain presents itself. “Also, many of these unplanned purchases are typically put on credit, which means they’ll follow us into the future and we’ll pay much more than we got, due to high interest,” he adds.
Opening credit cards at every store that offers it
Many stores encourage you to open their store credit card to get additional discounts, but, in this age of rampant identity theft, Eisenkraft says it’s not a good idea. “You shouldn’t be keying in your Social Security number to an in-store keypad where someone else can watch or a cyberthief can detect if nearby,” she says “Sadly, this happens at doctors’ offices, real estate offices, department stores, etc. Unscrupulous people or someone who desperately needs money will sell your personal information to an identity thief.” If you do choose to sign up for a credit card to your favorite store, do it in the comfort and security of your own home instead.
Not investing your bonus (or using it to pay off debt)
If you’re a lucky someone who scores a bonus from your form of employment or, perhaps, a relative, your initial reaction might be to go out and spend it, but Cici, advises against this. “Psychologically, bonuses, especially during good times feel like ‘found money’ and the initial response is to spend it into something you want, but you’d get a much higher long-term value if you invest or pay off debts instead,” she says. Do yourself a favor by practicing these debt-reducing strategies. “Before spending that on something that may not really mean much to you in a month or two, think about either investing it or, if you have high-interest debt, paying those off.”
Not rebalancing your investment portfolios
While experts say there’s no specific timing to rebalance your investment portfolios, the end of the year is pretty ideal. “During the year, your portfolios may have shifted as the result of some assets going up or down more than others,” explains Cici. “Rebalancing them, or bringing the weights of your assets to the original weights based on your financial plan, can help.” This approach will put more money in your bank account, painlessly. For example, if you had a portfolio made up of 60 percent stocks and 40 percent bonds, and there was a good stock market year, your portfolio may look more like 65 percent stocks and 35 percent bonds. Rebalancing brings the weights back to 60/40 and is known to enhance performance and can also be done automatically by some of the new investing platforms, she says.
Not maxing your retirement accounts
Experts agree that the end of the year is the ideal time to add or max your retirement accounts—master these smart habits for success. But many people don’t or cannot reach the maximums that are allowed by law, explains Cici. “You could contribute up to $18,000 a year in your 401K and if you’re 50 years or older, you could put an additional $6,000,” she says. “Those contributions, which are tax-deductible, will lower your current taxes as well as be invested to grow over time for your retirement.” Some good wisdom to put in your back pocket!
Forgetting to sign up for health care for the following year
With all of the stress of the holidays, it may slip your mind to sign up for your health care plan, especially if your employer’s health care plan doesn’t include everything you should be signing up for. “Many states have their own exchanges where you can apply to get coverage and maybe financial assistance based on your family and income,” says Cici. “That is an important financial decision, as healthcare is continuing to be one of the largest expenses for a family and careful evaluation of the choices, coverages, premiums, copays, and deductibles is an important decision that will matter for the whole year that you have coverage.” Also, there are tax penalties if not covered by a healthcare plan, so definitely an important financial decision.
Not keeping track of charitable donations
In the spirit of the holiday season, you may be feeling extra generous and contributing to various charities. Good for you! If you are, make sure to keep track so you can write these donations off on your tax return. “You can check and see if your charitable organization of choice is listed as an IRS qualified exempt organization,” says Green-Lewis. “Just make sure you receive documentation of your donation and save for when it comes time to file your taxes!”
Ignoring the Child and Dependent Care Tax Credit
If you’ve got kiddos running around who are on break for a week or more during the holiday season, you may be able to qualify for the Child and Dependent Care Tax Credit, which scores you up to $1,050 for your child and up to $2,100 for two or more if you send your kids to daycare or even a camp while you work, Green-Lewis explains.
Not dialing back your withholding
If you are expecting a tax refund for the year, Green-Lewis explains that you can lower your withholding allowances to reduce withholding and get more out of your paycheck next year. “If you do this, don’t forget to adjust your withholdings back based on your income in the upcoming year,” she says. “That depends on your spending habits—if having more money in your paycheck will cause you to over-spend on those peppermint mocha lattes or holiday shopping sprees, you may opt to keep your withholding the same and take your money as a tax refund.”
