A savings holiday is tempting, but don’t do it

We’re well into the holiday season now. And while the holidays are joyous, they can also be expensive. At this time of year, many people make spending decisions they end up regretting.

But you can enjoy the holidays and still stay on track toward your financial goals by following a few simple guidelines.

Set a budget—and stick to it. Whether you’re buying gifts or hosting holiday parties, you need to establish a budget and not exceed it. The people to whom you’re giving gifts and entertaining do not expect you to dig yourself into a financial ditch on their account—and they wouldn’t want you to do so, either.

Compare prices. With some searching, you can almost always find less expensive versions of those gifts you’re considering. But a word of caution: The earlier you start hunting for bargains, the better your chances of finding good prices

Watch for “after-holiday” sales. The best bargains typically appear when the holidays are over. While these sales may not benefit you this year, they can prove quite valuable if you decide to “stock up” on gifts for the next holiday season.

Don’t over-use your credit cards. Try to limit your credit card purchases over the holidays. If you must use a card, at least pick the one with the lowest interest rate—and do the best you can to pay off the card quickly. Keep in mind that the higher your debts, the less money you’ll have available each month to invest for retirement, or any of your other financial goals.

Avoid dipping into long-term investments. If you find yourself coming up short when dealing with holiday expenses, you may be tempted to cash out at least a portion of your long-term investments. But this should be avoided, for at least two reasons: First, depending on the account you’re tapping into, you may face penalties, fees and taxes. Second, and perhaps even more importantly, you’ll be depriving yourself of resources you had earmarked for your key goals, such as a comfortable retirement.

Of course you may eventually be able to replace the funds you’ve withdrawn. But in the meantime, you’ve lost out on the growth potential these investments may have provided—and that period of lost opportunity typically cannot be regained.

* Build a “holiday fund.” It might be too late for this year, but, once the holidays are over, set up a special account for next holiday season. Even if you put in only a small amount each month, you’ll be pleased with how much you can accumulate in a year.

Keep the money in a liquid, low-risk account—one that’s separate from any money you use for your normal day-to-day expenses.

By following these suggestions, you might be able to take some of the stress out of this holiday season—and possibly even brighten all the other seasons of the year.

Best wishes for a happy and healthy holiday season.

Deborah Leahy is an investment adviser with Edward Jones,
member of the Canadian Investor Protection Fund.

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