How to Avoid Overspending during the Holidays
The holiday season is a time to give thanks, reflect on the past year, and spend time with family and friends. However, if you’re not careful, it can also be a time you overspend on holiday purchases.
According to a Gallup poll, Americans expect to spend an average of $1,014 on Christmas or other holiday gifts in 2024, substantially more than the $923 reported last year. This excessive spending can have long-term financial consequences, including credit card debt and financial stress.
Why We Tend to Overspend
Consumers are "wired" to think more about the short term, according to behavioral finance expert Brad Klontz. For 99% of our time on Earth, thinking about the long-term future hasn’t served us well. Meeting our immediate needs has been the primary focus.
The short-term gratification of giving gifts to loved ones can eclipse the long-term focus needed to be good with money. This is where many people fall short, Klontz said. We can overspend because our long-term goals are much more abstract, and it actually requires us to do extra levels of cognitive processing to delay instant gratification.
How to Avoid Overspending
There are various ways to keep your holiday tabs within a reasonable range, experts said. Here are some of their tips:
Develop a Spending Plan
- Develop a spending plan now around how much to allocate to the holiday season. It’s not too late, even over Black Friday weekend. Consumers can use a gift list tracking app such as Santa’s Bag to track purchases and actual spend.
- Think beyond gifts. There are many other potential seasonal expenses, including groceries to feed out-of-town guests or for holiday feasts, holiday party attire, family photos, greeting cards and postage, seasonal outings, dinners with friends, fundraising events at your kids’ school, and donation drives. You may need to cut back on certain costs or spend less on gifts to accommodate these.
Set Gift Expectations
- Set gift expectations with family and friends now. This may mean focusing on kids only or setting up a "Secret Santa" exchange so you’re only responsible for one gift rather than many. Instead of a physical gift, perhaps find an activity to do together instead. Or, set a gift budget, suggesting a lower amount this year.
Tap into Free Rewards
- Tap into free rewards to offset gift costs. For example, sign up for free retail loyalty programs to earn money back to use toward other gift purchases; shop through cash-back portals such as CouponCabin.com or Rakuten for online purchases; and download a browser extension such as Fetch to earn rewards or free gift cards.
Reflect on Long-term Goals
- Take time to reflect on your long-term goals that really matter to you. This can help rein in the impulse to make short-term purchases.
Conclusion
The holiday season is a time to be mindful of our spending habits. By developing a spending plan, setting gift expectations, tapping into free rewards, and reflecting on our long-term goals, we can avoid overspending and prioritize what’s truly important to us.
Frequently Asked Questions
Q: How much should I budget for holiday gifts?
A: Aim to budget 1-2% of your annual income for holiday gifts.
Q: Can I use credit cards to fund my holiday spending?
A: No, it’s recommended to avoid using credit cards to fund holiday spending, as it can lead to debt and financial stress.
Q: How can I track my holiday spending?
A: Use a gift list tracking app such as Santa’s Bag or a budgeting app like Mint to track your holiday spending.
