Financial Planning Tips for Holiday Inflation

As the holiday season approaches, fear of inflation has some shoppers worried about the cost of holiday shopping.

A recent survey found that half of consumers were heading to stores earlier this year to get a head start on their holiday shopping, with nearly 20% starting their purchases as early as October.

Here, Debra Radway, a lecturer at the WP Carey School of Business who teaches financial planning courses at Arizona State University and ASU Online, explains how inflation will play a role in consumer spending and how families can prepare for this holiday season and beyond. .

Question: How will inflation impact middle and low income families this holiday season?

Answer: The cost of goods and services that affect most middle and low income families have increased significantly this year. According to the Bureau of Labor Statistics, from August 2021 to August 2022, rent increased by 6.7%, household energy costs increased by 13%, food in the home increased by 13.4% and the petrol increased by 24.6%. Although increases have moderated recently and some costs like gasoline are falling, salary increases have not kept up with this increase in costs. This will leave families with less money to spend on holiday gifts and entertainment.

Q: Is it too late or are there things people can do now to lessen the financial impact?

A: Making a list of the people you want to buy gifts for and budgeting for your total and per-person expenses will help you minimize overspending. For example, once you know you have a budget of $50 for a gift for your mother, you can start looking for items that would be a thoughtful gift and take advantage of the pre-holiday sales. Many retailers are expected to have extra inventory this year, so you might be able to find deals earlier in the holiday season.

One way to save a lot of time and money on holiday gifts while maintaining the joy of giving is to have a family gift exchange. We have been doing this for years in my family. Instead of buying a gift for each sibling and parent, we draw names anonymously through drawnames.com. Each family member receives another family member’s name and wish list. We then proceed to purchase a special gift, based on the agreed budget, for the chosen family member. We all get together and exchange Santa’s secret gifts. If you have a family of 10 and have a gift budget of $35, you’ll buy one $35 gift instead of 10 $350 gifts.

Q: Beyond the holiday season, what can people do to better plan their finances in the coming year?

A: Here are my suggestions for healthy finances.

1. Financial health check.

A financial health check will tell you if you are spending more than you are earning. Has your credit card balance increased over the past year? Has your total savings and checks increased or decreased over the past year? Have you withdrawn money from investment accounts in the past year? If you spend more than you earn, you will see one or all of the following: credit card balances increase, investment withdrawals or savings decrease.

2. Pay off your credit card debt.

If you can’t regularly pay off your credit card debt, you probably shouldn’t have any. About half of Americans pay off their credit cards every month, and the other half pay expensive interest rates of 18% to 22% or more. Cut the cards and start paying down the debt by eliminating high interest cards or low balances first. Once they are paid, close the account, and if you need a card, keep only one card at home and not in your wallet in the future.

3. Check your credit report and your credit score.

You can check your credit report for free using a trusted site, such as AnnualCreditReport.com, to ensure that all credit transactions are reported correctly. Your credit history will determine how much you pay for future loans, so improving your credit can save you money.

4. Pay for your purchases in cash.

Individuals spend less when they have to rely on cash for a transaction. So, after covering your monthly housing and car bills, take the remaining money and divide it into categories such as groceries, restaurants and entertainment, clothing, etc., and pay cash. When the money runs out in this category, you have to wait until the next month or take on more work. One thing we’ve learned during the pandemic is that we spend a lot of money every month on things we can live without.

5. Enjoy a business match in your 401(k) or 403(b).

Many employers will encourage you to save for your retirement by matching what you put into your retirement accounts. This is free money that you should take advantage of. If you earn $40,000 and your employer matches your first 6% contribution, you can contribute $2,400 to your 401(k) and your employer will contribute an additional $2,400 to your account. It is worth keeping spending under control and taking advantage of this “free money”.

Q: Is there anything else you would like to add that people should think about regarding their finances?

A: Take a look at your automobile expenses. Many families spend large sums on their car. Some families spend close to their housing costs for the vehicles they drive. Thus, extending the life of a car or buying a used car instead of a new car can significantly reduce the costs of car payment, car insurance and registration.

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