The Holiday Season: How to Avoid Overspending
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.
Consumers’ Spending Habits
About 83% of Americans plan to buy gifts for friends and family this holiday season, according to a NerdWallet 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, according to a Gallup poll published Oct. 25.
Why We Overspend
People have an innate impulse to overspend, experts said. They are "wired" to be consumers, said Brad Klontz, a psychologist, certified financial planner and behavioral finance expert. "For 99% of our time on Earth, thinking about the long-term future hasn’t served us very well," Klontz said. "Meeting our immediate needs was what it was all about."
The Short-Term Focus
The short-term gratification of giving gifts to loved ones can eclipse the long-term focus that’s needed to be good with money, Klontz said. That’s where many people fall short, he 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," he said.
Social Pressure and Marketing
Additionally, consumers may feel the social pressure to spend more than they might like because they don’t want to appear "cheap," said Andrea Woroch, a consumer finance expert. Many companies also promote deals — on Black Friday and Cyber Monday, for example — that can create a "buying frenzy," she said.
How to Avoid Overspending
There are various ways for consumers to keep their holiday tabs within a reasonable range, experts said. Here are some of their tips:
- Develop a spending plan now around how much to allocate to the holiday season, Klontz said.
- Think beyond gifts, Woroch said. 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.
- Set gift expectations with family and friends now, Woroch said. 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.
- Tap into free rewards to offset gift costs, Woroch said. For example, she recommends signing up for free retail loyalty programs to earn money back to use toward other gift purchases; shopping through cash-back portals such as CouponCabin.com or Rakuten for online purchases; and downloading a browser extension such as Fetch to earn rewards or free gift cards.
- Take time to reflect on your long-term goals that "really matter to you," Klontz said. This can help rein in the impulse to make short-term purchases.
Conclusion
The holiday season can be a time of joy and giving, but it’s also important to be mindful of your spending habits. By developing a spending plan, thinking beyond gifts, setting gift expectations, tapping into free rewards, and reflecting on your long-term goals, you can avoid overspending and stay on track with your financial goals.
Frequently Asked Questions
Q: Why do I overspend during the holidays?
A: You may overspend due to the short-term focus on gifts, social pressure to spend more, and marketing promotions.
Q: How can I avoid overspending?
A: Develop a spending plan, think beyond gifts, set gift expectations, tap into free rewards, and reflect on your long-term goals.
Q: What are some free rewards I can use to offset gift costs?
A: Sign up for free retail loyalty programs, shop through cash-back portals, and download browser extensions to earn rewards or free gift cards.
Q: How can I prioritize my long-term goals during the holiday season?
A: Take time to reflect on your long-term goals and prioritize them above short-term purchases.
