As the end of the year rapidly approaches, gift shopping is moving higher up on our to-do lists and we often begin to get caught up in the hustle and bustle of the holidays. However, it is important to remember that the desire to buy gifts for others doesn’t have to mean more stress, financial strain or credit card debt for you.
If you are planning to pay for holiday gifts with a credit card, you’re not alone. Statistics show that Americans collectively owe nearly $1 trillion on their credit cards, paying an average interest rate of 18.76 percent. In addition, per the National Retail Federation’s annual forecast, Americans are expected to spend a record amount this holiday season — nearly $682 billion, up 4 percent from last year.
This year, make it a more joyous holiday season for yourself by spending wisely and avoiding debt as you check items off your gift-giving list. Here are some tips that can help.
Determine your cash flow and gift budget. Essentially, take your household income and subtract your expenses. Remember that income includes interest from savings and investment accounts, and expenses include total household debt. If you have a positive cash flow, the surplus is what’s available to put toward gifts. If there is little to no surplus in your cash flow, remember that gifting is an option, not a necessity.
Make a gift list before you go shopping. Setting a gifting budget and making a list of those to whom you will give gifts — and sticking to it — can offer a guilt-free shopping experience. Also, prepare yourself mentally for situations where you may receive a gift from someone who is not on your list. The long-term benefits of remaining within your budget often outweigh the short-term gift-giving process.
Give something that appreciates in value. While we all tend to want what’s new and trendy, consider gifting appreciating assets, rather than depreciating assets. A new smartphone may be obsolete in 18 months, but a deposit to a retirement fund or 529 plan, antique jewelry, collectible coins, or perhaps money toward a gym membership can be beneficial long-term and may bring additional value.
Consider giving without spending cash. Do a good deed, or be creative and make something with items you already have. One way to give without a cash outlay is to make purchases on a credit card that offers “rewards.” When it’s time to give gifts, you can redeem the rewards as gift cards and either give them away or use them to purchase gifts. If you go this route, however, be sure to pay off the credit card balance regularly so you don’t fall into debt.
Gift yourself. Though we often prioritize giving gifts to others, it’s perfectly fine to take care of yourself financially, without feeling guilty. Use the opportunity to gift yourself with the future in mind. Focus primarily on gifts that will matter ten years from now and beyond. Consider paying down a high-interest-rate credit card, making an extra mortgage payment, contributing to your child’s education fund, investing in your career by taking a continuing education class, increasing your 401(k) contributions at work or making an extra payment on your college loan.
Let this year be your opportunity to make better decisions, in advance, about where your money goes this holiday season. That way, you can offer yourself the greatest gift of all – peace of mind.
Kristen Fricks-Roman CFP®, CRPS®, is a financial advisor and senior vice president at Morgan Stanley Wealth Management, Atlanta. She can be reached at [email protected].
The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates. Morgan Stanley Smith Barney LLC and its Financial Advisors do not provide tax or legal advice. Individuals should seek advice based on their particular circumstances from an independent tax advisor. Morgan Stanley Smith Barney, LLC, member SIPC.
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