We’re well into the holiday season now. And while the holidays are joyous, they can also be expensive. In fact, 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, including the following:
• 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. Over the last few years, Americans have actually done a pretty good job of lowering their household debt levels — and that’s definitely a movement in which you’ll want to participate. Keep in mind that the higher your debts, the less money you’ll have available each month to invest for retirement, college for your children 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 Of course, you may eventually be able to replace the funds you’ve withdrawn.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 may be able to take some of the stress out of this holiday season — and possibly even brighten all the other seasons of the year, too.
Time for Year-end Review of Your Financial Strategy?
Now that 2012 is drawing to a close, you may want to review the progress you’ve made this past year in many areas of your life — including your financial situation. By going over your investment portfolio and other key areas related to your finances, you can learn what moves you may need to make in 2013 to stay on track toward your important objectives, such as college for your children, a comfortable retirement and the ability to leave the type of legacy you desire.
To get a clear picture of where you are, consider asking yourself these questions:
• Am I taking on too much risk? Although 2012 has generally been a pretty good year for investors, we’ve certainly seen periods of considerable volatility. During these times, did you find yourself constantly fretting about big drops in your portfolio value? In fact, have you consistently experienced this type of worry throughout your years as an investor? If so, you might be taking on too much risk for your individual risk tolerance. Review your holdings to determine if you can lower your risk level without jeopardizing your overall investment strategy.
• Am I investing too conservatively? Just as you can take on too much investment risk, you can also go to the other extreme by investing too conservatively. If your portfolio contains a preponderance of investments that offer significant preservation of principal but very little in the way of growth potential, you may be endangering your chances of accumulating the resources you’ll need to achieve your long-term goals.
• Am I contributing as much as I can afford to my retirement plans? If you have access to an employer-sponsored retirement plan, such as a 401(k), 403(b) or 457(b), consider yourself fortunate. Your plan has the potential to grow on a tax-deferred basis, and you typically contribute pre-tax dollars — the more you put in, the lower your annual taxable income. Plus, your employer may match part of your contributions. So if you’ve been under-funding your retirement plan, ratchet up your funding in 2013. At the same time, you may still be eligible to contribute to an IRA; if so, try to “max out” on it. A traditional IRA grows tax deferred while a Roth IRA can grow tax free, provided you meet certain conditions.
• Am I adequately protecting my income — and my family? Over time, you’ll experience many changes in your life — marriage, children, new job, new home, etc. Most, if not all, of these changes will require you to make sure you have adequate life insurance in place to help guard your family’s future, should anything happen to you. Furthermore, to help replace your income should you become disabled, you may well need to purchase an adequate amount of disability income insurance.
• Do I need professional help? As the above questions indicate, maintaining control of your financial situation can be challenging — especially if you try to do it all on your own. You might benefit from working with a financial professional — someone who can analyze your situation objectively and make recommendations based on your risk tolerance, time horizon and specific goals.
Before the clock runs out on 2012, take the time to ask yourself the above questions. The answers may well spur you to take positive action in 2013.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.