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December is often a month full of celebrations and also reflections as we head into the new year. For many people, that means taking a look at their financial situations to see whether they’re set up to enjoy the holiday season while also being ready to start the next year with better money habits.
Here, Joey Ruffalo, owner of J.R. Financial Coaching, shares some of the most common money questions he typically gets from friends and family this time of year, as well as how he would answer them.
‘How Can I Make Christmas Special Without Breaking the Bank?’
Celebrating Christmas or other holidays like Hanukkah often means buying presents, but that can add up quickly. So, Ruffalo advises being mindful with your spending, including setting a budget for how much you’re willing to spend on gifts.
Also, remember the intention behind gift-giving is generally to show people you care, not to flaunt.
“It’s crucial to remember that thoughtful gifts often hold more value than expensive ones,” he says. “You can also be creative. Assign everyone you would buy for a number, and each person pulls a name/number. That is who you buy for that year. Set a cap and stick to it.”
Ideally, you can be honest with your loved ones about your budget.
“People often stress about buying gifts for everyone in their family,” Ruffalo said. “You don’t have to. If you feel like you can be honest and tell your family about your new financial journey and how you need to dial it back a bit in order to make a better future and buy better presents later, go ahead, they will understand.”
‘How Should I Manage Year-End Bonuses or Extra Holiday Income?’
Many people find themselves with extra income around the holidays, whether that’s because of a year-end bonus or extra opportunities to earn money, such as working overtime. But it’s important to manage that extra money wisely, not just spend it mindlessly.
The answer to how to manage this money “will depend on where you are in your financial journey,” says Ruffalo.
If you’re at the beginning of your financial journey, the first place to start would be building up your emergency fund with this extra money, he said. You don’t necessarily have to put everything into an emergency fund, but it helps to have a cushion.
“Making sure you have a little put aside is a key to financial success,” he said. “This can be anywhere from $1,000 to $2,000, depending on if you have children or not. I recommend starting at $1,000 and adding $500 for each child. Once that is completed, then focus on debt reduction. Lastly, depending on the amount, take no more than 10% and have fun with it.”
‘How Can I Save for the Holidays Throughout the Year?’
You might find yourself with very little money to spend this holiday season and want to make sure the same thing doesn’t happen next year. So, people often ask how to save for the holidays throughout the year rather than at the last minute, said Ruffalo.
“Setting aside a small amount each month in a ‘holiday fund’ can significantly alleviate the financial pressure when the holidays roll around,” he said. “The great thing about Christmas is it is always Dec. 25, so it is easy to plan for.”
To figure out how much to save, do some simple math based on what you want to spend.
“Saving a small amount per month can add up,” Ruffalo said. “Ten dollars a week is $520, or $50 a month is $600. Figure out a reasonable amount and divide it by 12. That number gets entered into your budget under ‘holiday savings.’”
You might even decide to fully separate that money so it’s ready to be used on holiday shopping, rather than getting eaten up by other expenses throughout the year.
“Set up a separate account at your bank and have it do an automatic transfer, so you are not tempted to spend it,” he said. “Of course, if you see a deal sometime during the year, you would have some money saved, and you could use that toward early gift buying.”
‘What Financial Resolutions Should I Make for the New Year?’
Lastly, people often want to set better financial goals for the new year but aren’t sure what that should look like.
“It could be anything from committing to saving a certain amount, investing in stocks, or paying off a specific debt,” Ruffalo said. “It needs to be reasonable and attainable. Start small. Give yourself a goal for January of reducing your spending by 5%. If you take home $5,000 per month, that is $250 reduced across all of your categories.”
Think of your financial goals as similar to other New Year’s resolutions.
“New Year’s is a time when many of us make diet and fitness resolutions to lose weight,” he said. “We do that by cutting calories. Same thing here; let’s trim the fat in our budgets and reduce our spending to get our finances in shape.”
Additional Year-End Tips
In addition to considering these answers to these common questions this time of year, Ruffalo has a few other suggestions for what people should be considering to prepare their finances for the new year.
“First and foremost is budgeting,” he said. “Nothing like a new year, fresh start to begin budgeting. You need to know where you came from in order to know where you are going. I firmly believe that the budget is the foundation upon which your financial house is built.”
December is also an important time to review taxes. While they might not be due for a few more months, much of your tax situation depends on what happens during the calendar year. Making charitable contributions during the holidays, for example, could reduce your tax burden, he said.
“Having one last call with your financial advisor and tax professional should be on the top of your list” before the year ends, he said.
Lastly, he said, the end of the year is a good time for a financial review, looking at your assets vs. liabilities, as well as investments and estate planning.
“Basic estate planning would include reviewing your will, updating if any life events occurred, like moving to a new state or updating beneficiaries,” Ruffalo said. “Review any life insurance policies as well as power of attorney and advance directives you might have. My most important tip with this is to have a family meeting to go over these elements with those who they affect. Everyone should have a clear understanding of their roles and the outcome.”
By making these types of moves and decisions, you can ideally enjoy the holiday season with less stress and a better financial situation.
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