It is hard to believe that it is already November and the end of year celebrations and events are just around the corner along with the expenses that go with them.
Retailers love this time of year. Sales go up allowing stores to increase their profit margins.
Consumers can easily get themselves into trouble this time of year due to excess spending. Failing to properly plan for end of year activities can put your personal finances in the red. If you take a little time to assess your finances and create a reasonable budget that you can stick to for the next couple of months, you could enter 2020 with a positive cash flow that will help you to start the year off right.
- Determine what your budget will be based on your cash flow. This can be done fairly simply:
- Calculate your take-home pay for November and December
- Add up your fixed expenses (mortgage, utilities, car payment, gas, groceries, etc.)
- Determine your discretionary income by subtracting your fixed expenses from your take-home pay.
- Make a list of all potential year-end expenses.
- Will you be hosting or attending any parties or holiday celebrations? Calculate the approximate amount you will spend on food, decorations, favors, hostess gifts, etc.
- Will you be traveling? Estimate what you will spend on airfare or other transportation, hotels, dining out, etc.
- Do you need to buy gifts? Make a list of all the people you need to buy gifts for and calculate an approximate budget for each gift.
- Should you give a year-end tip to a service provider? Think of your hairstylist, childcare provider, personal trainer, trash collector, mail carrier, dog walker, and any other person that provides service to you or your family. Make a list of all those you wish to tip, either with cash or a gift of some type and calculate the total cost.
- Are there any other expenses you think you will incur? If you go to the movies a couple of times to see the holiday offerings each year, take a family trip to ice skating rink, go out to dinner with a special group of friends, or any other activity that you regularly do or have already planned to do this year, add up the cost of each special event.
- Calculate the difference between your discretionary income and your year-end expenses
- If you are lucky, you will have enough discretionary income to cover your list of potential expenses.
- If you are like most people, there will be a lack of funds to cover everything you hope to do.
- Decide how you will make up the difference between your discretionary income and your potential expenses
- The first option is to make more money. Could you get a part-time job to make some extra cash? This could be as simple as offering babysitting, dog walking, or housesitting services to friends and neighbors. A post to a social media site can be a good way to advertise. You could also apply for a job at one of the many retailers looking for holiday help or get a job as a driver or delivery person for one of the many companies that have popped up in the gig economy.
- The second option is to spend less. Look at your list and decide what matters to you. Could you spend less on gifts? Could you cut out an expensive fancy dinner at a restaurant and instead make a more cost-effective meal at home? Could you save by giving homemade gifts that are more personal? Cutting back can be hard when it comes to annual traditions. Some things are worth the cost. Do not feel guilty spending on things that matter to you but, be open to changing traditions slightly to help meet your budget goals.
- The best option might be to do a little of both. Look for ways to earn extra cash and cut your spending to include only the things that matter to you.
- Finalize your plan and stick to it
- Decide what you are going to spend and keep yourself from going over budget. If you spend too much on one thing, look for other places in your budget to cut back.
- Beware of giving in to convenience costs. The end of year is a busy time and it is easy to go over budget by spending on things that have little actual value. For instance, if you wait until the last minute you may need to pay for express shipping that you could have avoided by shopping early. You may be too tired to cook but, do you need to pay a delivery driver to bring your food to your house? You could save by picking up food yourself (grocery store delis are a great way to get ready-made meals without breaking the bank).
- Reward your future self by sticking to your budget now. If you spend the first part of the year paying off last year’s expenses and the interest payments that go with it, you limit the things you can do next year. Could you take your budgeting abilities into the New Year and save enough for a dream vacation, a new car, or some other goal? Meeting future goals could be far more valuable in the long run than the momentary satisfaction that you would receive overspending on year-end gifts and events.
Let’s be honest, it can seem like a lot more fun to just embrace the spirit of all the year-end celebrations by spending without much planning or thought. It is easier to make that a problem for your future self. But, rewarding your future self with good habits that will set you up for a financially sound new year is a lot more fulfilling in the long run.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.
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