When it comes to budgeting and financial planning, many people don't account for the higher expenses of the holiday season. With the excitement, stress, and expectations of the holidays, it's easy to spend too much and let go of our good money habits.
If we're not careful, overspending could eat into our long-term financial goals. That may sound dramatic, but regularly taking money from an emergency fund or your investments to pay for gifts could add up to substantial financial implications over time.
But what if you planned for the predictably-expensive holiday season, the way you do for a vacation or house? Including the holidays in your short-term financial plan can help you stay in control of your financial goals.
Here are some ways you can get started:
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 an expected expense that you can budget for.
Even though the holidays seem to sneak up every year, you can take steps to avoid compromising your financial goals during this expensive time of year. That starts with including a holiday fund or budget in 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. You can even create a monthly savings plan months before the holidays. Just set up a holiday fund, and contribute money into it periodically ahead of time.
Let's say you want to spend RM5,000 in December on gifts and decorations. You can start setting aside RM1000 of your monthly income several months in advance to fund your holiday expenses.
Consider keeping your holiday fund in a savings account that earns a high interest rate. Or check out our cash management portfolio, StashAway Simple™, which doesn't charge any fees or require any minimum deposit amount.
The holiday fund puts you, and not your emotions, in control of your expenses come the festive season. That means you'll less likely overspend and compromise your financial goals.
And if you didn't have a savings plan leading up to this holiday season, pay extra attention to your expenses. Make sure to stay within your budget and avoid dipping into your emergency funds.
(Remember, last-minute shopping is not an emergency!)
Just as we plan ahead for big financial obligations, planning holiday purchases can benefit our overall financial wellbeing by managing mental and financial stress.
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 exercise can help prioritise your gifting and control your urge to buy gifts for everyone in your life. Consider narrowing down your list so you don't unnecessarily overspend.
Remember, you want to keep your investments and emergency fund intact throughout the holidays.
Having a savings plan for the holidays is already a great start. And if you've already planned to buy gifts for certain people, you can even start gift shopping early.
Pick up gifts the weeks or months before the holiday season or while you 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 time. What often happens when you're stressed and busy is that you'll end up paying more for convenience.
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.
A holiday savings plan means that you won't be tempted to dip into your emergency fund or investments to pay for your holiday shopping.
While it may seem tedious to come up with a holiday budget and savings plan, preparing for expected expenses is an essential part of your yearly financial planning. Without preparation, we risk compromising our financial safety nets and long-term financial goals.
Remember, holiday budgets and spending plans aren't about being frugal during the holidays; instead, it's about taking the time to prepare.
Ultimately, preparing a holiday fund and early planning frees up your time and energy during the holiday season, so you can focus on the people that matter in your life. After all, isn't that what the festive season is all about?
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