Go ahead, live a little. Buy that new game console you don’t really need. Throw a party with all the trimmings. It’s the holidays! Indulge!
This, of course, is not the standard finger-wagging lecture you get this time of year, especially in a post-recession period that feels just like an actual recession.
At this time of year, the press is full of tips on holiday saving: Set a budget and stick to it, make gifts by hand, make charitable contributions for others and take the tax deduction yourself, emphasize experiences rather than things, shop around....
Okay, we get it: Thrift is in, extravagance is out.
But holiday spending has two things going for it: People do think about what they’re buying, and this kind of spending involves no long-term commitment.
Thoughtless spending is one of the greatest destroyers of wealth. A lifetime of it can delay your retirement for years, or leave you with less to spend after you do quit work.
Ill-conceived spending covers everything from bottled water, when tap water will do, to paying for cell phone minutes you don’t need to neglecting to look for cheaper insurance every year. It covers everything that isn’t worth what it costs, has a cheaper alternative, or isn’t needed at all.
If tightening up on nickel and dime expenses saved you $200 a month, you could build a nearly $300,000 nest egg over 30 years by investing at an 8% return, according to the BankingMyWay Savings, Taxes, and Inflation Calculator. Plus, you’d earn even more if those savings grew with inflation.
Wealth destroyers of the commitment variety include things like tying yourself to a 30 year mortgage that’s too big, or taking out a new car loan every few years instead of sticking with the old clunker for the duration.
Not only will spending too much on a home increase your interest costs, it will probably boost expenditures for real estate taxes, insurance and maintenance.
And, as so many homeowners have learned in the past few years, a commitment to too much house can be very difficult to break. You could be stuck with the place long after you’ve realized it’s a money pit.
Compared to this, a holiday splurge is nothing, assuming a little bit of common sense. Obviously, it would be a mistake to put all your holiday spending on a high-interest credit card and carry the balance for years, building up interest charges and the risk of incurring late-payment penalties.
So, when the holidays are over, it will make sense to set a schedule for paying off the bills in two or three months. Better yet, put some extra cash into your checking account now and use a debit card for holiday spending, so there will be no risk of post-holiday interest expenses.
With online access to your accounts you can keep track of holiday spending, and your bank probably offers an automatic alert service that will send an e-mail or text message if your balance gets too low.
As long as you know how much you’re spending and feel confident it won’t turn into a long-term drag on your finances, then there’s nothing to feel guilty about.
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