Save Before the Holiday Season is Here
Many people feel time pressure and financial strain during the holiday season, and planning for the holidays is very different with the coronavirus pandemic. You can take steps now to save for your holiday spending. If you follow a plan, your holiday spending will be less stressful.
However, don’t forget to pay yourself first.
Pay yourself first
Paying yourself first means that, before your spend money on anything else, you put money into savings.
Planning for the holidays is a short-term decision, while retirement planning is a long-term goal. Saving for retirement is an ongoing issue, regardless of your short-term plans. To make sure that you pay yourself first, create a monthly budget.
Write a monthly budget
Let’s assume that Amy earns net pay of $4,000 per month. To create a budget, she needs to know where she spends her money in a typical month. She pulls her bank statements and credit card activity for the past three months, and creates categories for each type of spending. Spending can be defined as either fixed or variable:
- Fixed spending: Rent payment, car payments, insurance premiums
- Variable spending: Food, entertainment, utilities
The utility category can be partially controlled. Amy can keep her thermostat higher in the summer and lower in the winter to save on utility costs, but weather plays a big factor in how much she ultimately pays.
A monthly budget can be documented in an Excel spreadsheet, a mobile app, or simply written down in a notebook. The key is to write it down and total the spending by category each week. Every budget should include a savings category.
Create an emergency fund
The best way to reduce financial stress is to maintain a $1,000 balance in an emergency fund. If you need a car repair or an appliance breaks down, you can use the emergency fund for the repair. $1,000 is a great way to start, and you may keep a higher balance as time goes on.
Amy has to make the rest of her monthly spending fit into the $3,800 she has after the saving account is funded. If she’s over in a certain spending category, Amy can make cuts to some of the variable spending areas. Maybe she eats out less, or doesn’t buy expensive coffee at Starbucks.
With the pandemic going on, many consumers are reducing their spending.
Consider spending less
Take a look at last year’s holiday spending and ask yourself: is it necessary to spend that much this year? Could you cut down on the number of gifts you buy, or have a scaled down holiday party? Give that some thought before the holidays.
Plan your holiday spending
Avoid impulse buying and plan your spending. Create a budget for each gift, party, or other holiday spending category and stick to it. With planning and self-discipline, you can have a great holiday and still fund your savings account.
Are you increasing or decreasing your holiday spending this year?
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