Oh, the holidays. The season of good cheer, festive parties, and well, spending money. Sometimes, a lot of money. Between gift giving, buying a new outfit (or a few) for those holiday parties, buying a round of drinks (or a few) for co-workers, the list of added expenses this time of year can add up quickly. It can be easy to turn to plastic or dip into hard-earned savings, but those options can lead to a financial hangover when January rolls around.
We recently sat down with financial advisor and author, Chris Manske, a United States Army Captain, owner of Manske Wealth Management, and author of the upcoming book, The Prepared Investor, to get some tips on how to navigate the season without hurting our financial goals for 2020.
What advice do you have for consumers trying to balance holiday spending while trying to save for a down payment on a home?
CM: Saving for a down payment on a home can be both exciting and a little bit like watching grass grow. As the months go by and your savings account gets larger, the end-of-year holidays suddenly arrive and it feels like a crisis that can easily derail the whole train. Here are three questions to ask that will help consumers navigate the demands of the holidays while also keeping their sights on making a down payment for a home.
- How close am I to my savings goal and to making my home purchase?
If you are just one or two months from completing the down payment and there are some homes on the market you’re already interested in, you probably don’t want to go overboard with expensive gifts and holiday travel. There are a number of strategies you can use to lower the cost of the holidays, and one approach capitalizes on the power of your family and friends with whom you celebrate holiday traditions.
If you share with them how close you are to your potential new home, you might be surprised how supportive your tribe will be that this holiday needs to be a little different. A nice way to frame this is to offer hand-written cards that describe a future housewarming party, which is your gift to them right now.
If you’re married, instead of exchanging costly gifts with your spouse, you can trade thoughtful lists describing what you are most excited about and most worried about with the upcoming purchase of the new home. Taking this approach lowers the overall cost of the holidays, accomplishes the spirit of togetherness and remembrances that make the holidays special, and offers a unique opportunity for excellent communication with your spouse about a major, upcoming transition.
- Have I already been saving for the holidays?
One of the major tenets in my upcoming book, The Prepared Investor, is the importance of living beneath your means. According to surveys by Credit Karma and NerdWallet, about one half of America goes into debt to celebrate the holidays. The chances are that most people reading this aren’t saving for both a house down payment and holiday expenses. Recognizing that, consumers can take a month off and use their monthly savings that normally go toward that future down payment and instead use it for the end-of-year holidays. The important part of this strategy is to sincerely commit to the budget that is the monthly savings for the down payment. Don’t let the holidays zap your down payment savings and your credit cards making it harder to save for your down payment in the future.
- Can I save for my down payment through other resources?
If you just have to have an expensive holiday and foresee debt in your future, you’re not alone. So maybe it’s time to think outside the box and try to raise money for your down payment through other non-traditional ways. Here’s a few:
a. You could take on another job and raise extra money. The new gig economy makes this a lot easier than in the past. Being an Uber driver might even be fun!
b. You could do a nationwide garage sale. All your extra toys in the closet and old clothes you don’t wear anymore might be useful to someone else. Photo them well, post them on eBay or another app you prefer, and sell, sell, sell!
c. Tell everyone you refuse to accept a gift this year and just want cash. Share with them why you’re making this request so that you include them in your journey toward a new home.
d. While it’s not for everyone, there are circumstances when you might consider using social media or other money-raising apps to frame your down payment as a charitable cause that your connections and others can support monetarily.
If you share with family and friends how close you are to your potential new home, you might be surprised how supportive your tribe will be that this holiday needs to be a little different.
During the holidays, it seems like a lot of people feel pressure to spend beyond their means on gifts or entertaining, which in turn can lead to debt. Any insight on how you’ve helped clients navigate the financial pressures of this season?
CM: In my upcoming book, The Prepared Investor, I discuss how effective it is to take time out from the daily grind and really focus on a particular subject. In this case, sit down with pencil and paper and seriously consider, “Why do I celebrate the holidays the way I do? What do I want to accomplish?” More often than not, we find there is a disconnect between our values and what we actually do during the holidays. With it written out, so you can refer to it again and again, it’s easier to recognize when you are feeling pressure from without to do something that isn’t in keeping with your own ideals. It’s also easier to share with your loved ones what’s really in your heart instead of just getting swept up into the bustle of plastic toys and new clothes that most people take back. Consider that 9 out of 10 people who go into debt over the holidays plan to keep it secret from their loved ones. In some households, this means one spouse doesn’t even know what fiscal burdens their partner is carrying. This can affect our health and well-being, so we’re not just talking about money here. We’re talking about living well and protecting your values and relationships from holiday strain.
It’s already December, so for those who haven’t set aside money for the holidays, what are other options (if any) are there for consumers who don’t want to go into debt?
CM: Don’t let another day go by. Commit now to not letting this happen to you again. Start saving immediately, and maybe this month and next month your new commitment is just going to your credit card to cover this season’s expenses, but don’t stop that good savings habit in February or March. Keep it up! Save every month for the end-of-year celebration that you know is coming and then you’ll be ahead of the game next year with only one little worry: the “B word.” Stay in your budget! Another way to help avoid debt is to offer up your home as the central celebration location. If you host the family celebration at your home, you could potentially save a lot of money. But there’s an even cheaper way to do this if technology is your friend. Simply hook your computer and camera up to a large TV in the family room and use Skype or Facetime to be able to see and hear everyone even though they are not in your home. With just a little effort, you could share the holiday experience with loved ones on the other side of the country without even buying a plane ticket.
One of your tips is to use cash. Can you talk a bit more about why this works and how you put it into action (and resist pulling out the credit/debit card)?
CM: If you don’t have the funds, don’t spend them. This is easier said than done, so let’s break that down a bit. First, try to use cash or debit cards instead of credit cards. Lots of people think using any card is bad, but there are two cards that are wonderful to use over the holidays: debit cards and gift cards. Debit cards take funds, meaning actual cash, right from your bank account so you aren’t borrowing money to celebrate the holidays. Gift cards are even better because, more than likely, it’s someone else’s money from when they gave you the gift card. So look through your purse or wallet, dig through your “everything kitchen drawer” and try not to be the statistic that says over one billion dollars in gift cards each year get purchased and then are never used at all. Another more intense approach requires that you add to your Halloween tradition. Just before trick or treating starts, put all your credit cards in the freezer or someplace you can’t easily use them. Then, to celebrate the new year, pull them out again on January 1st.
Another tip you have is to “share gift giving with others.” Can you explain what that means?
CM: If you team up with your brother or sister to buy mom a present, that means it will cost you less and there will be less materialism under the tree. Don’t we all want to get away from the “trash and trinkets” mentality during the holidays? If you like this idea, you’re going to want to start early. The longer you wait to talk to your family about sharing gift giving, the more likely they have already made the purchases and your opportunity is lost. Another great benefit of starting early is that it allows you to spread the holiday purchases over three or four months, meaning there’s less of an impact on your monthly budget. So let’s get started! What’s stopping you from calling your loved ones right now and asking to focus on each other this year, instead of toys and clothes? Do we really need another pair of socks in our drawer or a new blender in the kitchen?
Christopher R. Manske, CFP® leads an independent fiduciary, Manske Wealth Management. Manske’s upcoming book is The Prepared Investor: How the Next Crisis Will Affect Your Financial Independence. For more information, visit www.manskewealth.com.