Buying holiday gifts can lead to greater debt as well as increased stress, family arguments, depression, loss of sleep, headaches and even anxiety if not planned-out properly.
While it may bring you tremendous satisfaction to see your friends and loved one’s expressions of joy and amazement while ripping open their presents, consider to utilize this time of year as a “teachable” moment on both gratitude and personal finance.
As you struggle with your invitations and shopping lists while battling long lines at the mall, the following holiday gift tips and money-mindset strategies should help you to gain some financial sanity and control during the hectic holiday shopping season.
1. Budget in Hours:
When buying holiday gifts or experiences for yourself and others, consider to budget each purchase in hours not dollars. This unique perspective will help put your gift purchases and impulse spending in a new light.
For example, the snazzy $7K Rolex you’ve been eyeing would cost you 200 hours of work if you earn $35 per hour. This equates to over a month of your salary or approximately 10% of your annual income.
2. Eliminate Envy:
Social media can really mess with your money mindset at any age. Don’t let envy get the best of you when checking out your friends’ new expensive ‘toys’ posted on Face Book along with their “selfie pics in remote locations.
Don’t benchmark your spending or your definition of success based on your friends’ social media posts. Exercise restraint! Shopping should not be a competition to see who buys their kids or grandkids the most expensive and luxurious gifts.
3. Be Frugal:
In today’s “PC” (politically correct) post-recession economy where people are being a bit more frugal with their money, take caution in giving lavish gifts that may inadvertently brand you or your business in an ostentatious light.
Many industries have strict guidelines that forbid excessive gifts to employees or clients. For example, if you work in the financial services industry, FINRA regulates all financial advisors to limit gifts to clients at $100 in value for the year.
4. Create a Wish List:
Whether you celebrate Christmas, Hanukkah, Festivus or Kwanzaa, don’t just “wing-it” with your gift giving goals. Set a budget with your friends and family members so there are no judgments made and less money wasted.
More than 20% of returns happen during the holiday season – about $60 billion per year in merchandise in recent years, according to Optoro, a logistics provider. Huge trailers of returned goods end up at outlets and flea-markets.
Have your loved ones create a gift “wish-list” in advance, while setting reasonable guidelines and expectations. This may help to reduce unwanted gifts that end up being returned each year which add to the billions of tons of waste- and wasted money.
5. Pull Family Resources:
Expressing love, gratitude and thanks should not be a financial burden to the gift giver. One of our most valuable holiday gift giving tips is to be resourceful.
Consider group gift exchanges where each person chips in an amount of money to buy another family member or coworker a gift that may be nicer than what you could have afforded to buy yourself.
6. Combine a Gift with a Future Vacation:
Buy something you can do together with your spouse, loved one or child. For example, purchase a trip or a cruise as a needed vacation.
By combining a holiday gift with a future vacation or experience, you are saving money and providing an experience you both will remember for years to come.
7. Give the Gift of Education:
Contribute cash to a kid or grandkid’s 529 prepaid tuition program or 529 savings program as a gift.
Although contributions are not deductible for federal income taxes, earnings grow federal tax-free and will not be taxed for qualified expenses. 34 states and the District of Columbia offer residents a full or partial tax deduction or credit for 529 plan contributions.
Unlike Coverdell Education Savings Accounts or Roth IRA’s, 529 plans have no age, income or annual contribution limits. Contributions up to $14K per individual per year ($28K for married couples) will also qualify for the annual “gift tax” exclusion amount under current Federal estate rules.
8. Gift a Stock Certificate:
Purchase a small number of shares of a company stock for a kid or grandkid in a “custodial account” and give them a framed- stock certificate as a gift.
There are a few reputable online retailers that provide this service in a few easy steps. Purchase a stock from a brand they will be familiar with (such as Disney) and review the value of the stock with them every December.
As responsible parents (or grandparents), educating kid’s about the value of money and investing may be a gift that will benefit them long after the excitement of the holiday season is over.
9. Pay in Cash
Utilize cash for your holiday gift purchases where possible and make sure to pay off your credit card purchases in the next month. Exercising financial discipline with your shopping online and at the mall could save you significant headaches and money in interest payments over the long run.
Don’t rack up thousands of dollars on plastic while inadvertently hurting your credit score over time. Also, avoid get sucked into opening new retail credit cards with up front discounts and low teaser rates which reset in a year to over 18%.
10. Get Creative With Gift Cards:
When shopping for gifts for a family member, coworker, friend or employee, get more creative than buying a generic gift card from Visa or AMEX. Take a few minutes to show you actually care and came up with a thoughtful idea, even if delivered in plastic or emailed to their in-box.
Provide a unique service or experience that someone will appreciate whether its getting their car detailed, a day at their favorite spa or an experience they can share with their kids (or grand-kids) like an upcoming music, sports or theater event.
For more information on our firm or to request a complementary consultation please email [email protected] or call (561) 210-7887 today.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.