Head of Partnerships
05 December 2019
Many people neglect to account for the predictable inflated spending that comes with the holiday season when they think about their budgeting and financial planning. With all of the excitement, stress, and expectations of the holidays, spending too much and letting go of our good money habits is easy. But, if we’re not careful, overspending could eat into our long-term financial goals. That may sound dramatic, but making it a habit to take money from an emergency fund or your investments to pay for gifts and parties could actually add up to substantial financial implications over time.
What if you reframed the predictably expensive holiday season to be something you actively plan for, the way you do a vacation or house? Including the holidays in your short-term financial plan can help you stay in control of your financial goals.
Part of a sound financial plan is preparing for a wide range of expected and unexpected expenses. That’s why you probably have an emergency fund and a travel fund. But do you have a holiday fund? The holidays are absolutely an expected expense for which you should budget. Even though the holidays seem to sneak up every year, there are ways to avoid compromising your financial goals during such an expensive time of year. That starts with including a holiday fund or budget into your savings plan.
Just as you would when you’re setting other financial goals, assess how much you want to spend this holiday season before even buying anything. If you’re a good planner, you can create a monthly savings plan months before the holidays.
Set up a holiday fund, and contribute money into it periodically ahead of time. Here’s an example: Let’s say you want to spend RM5,000 in January next year on Chinese New Year angpaus, decorations, and parties. You can start setting aside RM1000 of your monthly income several months in advance to fund your Chinese New Year expenses.
Instead of letting emotions dictate your spending patterns during the holidays and potentially compromise your financial goals, the holiday fund puts you in control of your expenses come the festive season.
If you didn’t have a savings plan leading up to this holiday season, pay extra attention to your expenditures and make sure to stay within what your discretionary funds allow and avoid dipping into your emergency funds. Last-minute shopping is not an emergency.
Just as we plan ahead for the big financial obligations in our lives, planning our purchases for the holidays can also benefit our overall financial well-being. Planning ahead of time helps manage the mental and financial stress that often comes with the holidays.
But beyond managing the stress that can come with the holidays, planning ahead can also prevent unnecessary spending. If you have a hard time controlling your generosity this time of year, set aside some time to create a list of people for whom you plan to buy gifts. This can help prioritise your gifting, as well as control the urge to buy gifts for everyone in your life, so consider narrowing down your list so you don’t unnecessarily overspend.
Yes, you may want to impress, give the best gifts, and make the holidays memorable for your loved ones but taking the time to plan the gift-giving can help you avoid getting carried away when buying gifts.
Remember, the name of the game is to keep your other pockets of money intact through the holidays.
Having a savings plan for the holidays is already a great start. And if you’ve planned to buy gifts for certain people, you can take the holiday preparation up another notch by starting the gift shopping early.
Pick up gifts throughout the year as you travel or do your personal shopping. You know you’re going to get your partner that nice shirt so why not skip the Christmas crowds and the wasted hours queuing at the cashier and get it earlier?
Shopping throughout the year is not only about saving money, but also about managing your sanity. You know you’re going to be busy during the holidays, and what often happens when you’re busy is that you’ll pay more for convenience. When we put ourselves in a position of waiting until the last minute, we end up paying more than we have to, and stressed out over things that aren’t worth stressing over.
Preparing throughout the year for the holidays with a dedicated savings plan and shopping early may seem like overkill, especially if you’re making a comfortable salary. But, the money has to come out of some part of your budget. The point is to include larger expected expenses into your monthly savings plan.
Plus, you can use this gift-giving fund for birthdays, anniversaries, and other gift-giving throughout the year.
The point of having a savings plan for expected expenses is to keep intact the money set aside for other things. It may seem tedious to come up with a holiday budget and savings plan, but preparing for expected expenses is an essential part of your yearly financial planning. When we aren’t prepared to spend for the holidays, or really anything, we risk compromising our financial safety nets and goals, gradually chipping away at our long-term financial objectives. A holiday budget and spending plan isn’t about being frugal during the holidays; rather, it’s about taking the time to prepare.
Ultimately, preparing a holiday fund and planning early will free up your time and energy during the holiday season so that you can focus on the people that matter in your life such as your family and friends. After all, isn’t that what the festive season is all about?