Tips to Budget for the Holidays – Morningstar.ca
As we head into the holiday season, expenses are on the rise. Many of us spend quite a bit – perhaps, too much – on gifts to vacations, celebrations, and functions. And right as we head into the new year, which is usually a time to focus on new beginnings, some of us might be dreading our upcoming credit card bills.
If this is you, don’t worry, you’re not alone. The good news is, there are ways to deal with having spent too much, or indeed, tips to avoid doing so in the first place. But first, why do we overspend at this time?
Morningstar’s director of personal finance, Christine Benz points out that people tend to overspend because, well, it’s fun! “Obviously, there’s a lot going on around the holiday seasons, parties and gift-giving and so forth. And as we earn more, we tend to experience a little bit of lifestyle creep and tend to spend what we earn. Add to that, we’ve had strong performing equity markets, and that has the net effect of stoking a wealth effect. So if you’re looking at your retirement portfolio balance, chances are if you’ve got stocks in that portfolio, you’ve seen an enlarged balance. Even if your paycheck hasn’t changed, that might make you feel wealthier and more inclined to spend overall,” she says.
One reason for this is our tendency to compare ourselves to others, especially at this time. In her report “The Comparison Trap: How Social Comparisons Affect Our Financial Well-Being,” Morningstar’s Sarah Newcomb finds that certain mental factors—the direction, frequency, and target of social comparisons—had strong associations with financial well-being. “People have a tendency to compare themselves with those who are better-off, and this was strongly associated with negative financial emotions. In other words, most of us seem to be actively making ourselves feel bad about our own financial circumstances by always looking up to those who have more,” the paper finds.
There are things you can do to combat this. One way to feel better about your finances is to redefine who you’re comparing yourself with. Put another way, count your blessings, and see how much better you have it than some others. Another tip the paper provides is to find a new financial role model, preferably someone similar to yourself, as this might help your well-being.
The Importance of a Budget
As with all things money-related, having a budget for the holidays is crucial, but difficult. The reason budgeting is hard is it requires us to give up short-term gratification in aid of long-term gains – in short, it requires …….