'Americans learned about the importance of smart spending and careful use of credit during the recession, and as the 2013 holidays approach we're once again looking toward the financial horizon,' said Alok Prasad, head of Merrill Edge. 'To keep savings and investments on track, now is the time to put together a realistic holiday budget - before the dinners, the parties and gift exchanges kick into full gear. Half an hour of planning now will keep holiday spending as trim as the turkey.'
In the recent Merrill Edge survey, the majority of mass affluent Americans said they learned to handle their finances through trial and error. That means even successful people often have to learn about money the hard way, and there's always room for improvement. In fact, 68 percent of survey respondents said they are still working to live within their means. So, if you add it all up, the message is clear: as the holidays inch closer, the wise approach is to spend a little time thinking about and planning for the inevitable spending.
The National Retail Federation predicts the average holiday shopper will spend $737.95 on gifts, decor, greeting cards and the like this year. That's a slight dip from what Americans actually spent last year, but it's a good reminder that the season's spending demands preparation. People tend to not set aside enough money for the holiday season and often go over their intended budget, or they forget about possible emergencies that may require additional funds. Shoppers also sometimes dip into savings accounts or rely too heavily on credit cards, instead of planning and budgeting properly.
Take 30 minutes to create a list of your expenses, both holiday and every day, to see how your potential holiday spending compares to your available funds. Be sure to include a category for savings to help avoid the temptation to divert funds that should be put toward future dreams and goals. Ultimately, the key to successful budgeting is sticking to it.
It's no coincidence that 68 percent of the mass affluent in this country keep a budget and nearly 90 percent of those people actually honor it. Once a budget is in place, master the art of cutting and trimming. If it's looking a bit snug, consider money-saving alternatives such as entertaining at home more often and scaling back vacation plans. With longer-term goals in mind, it can be easier to set priorities and make these short-term decisions.
Do a little homework. Before heading to the mall, do the research and plan ahead. Make a physical list of people to buy for and note how much to spend on each, so it's readily at hand and easy to follow. You can use this checklist to track purchases and the budget. Focusing on this list of people will help reveal how much holiday gifts will really cost. Consider searching online or using your mobile device for coupons and price matches while waiting to check out. Unlike your mom's coupon booklet, price comparison sites can help you identify an item's lowest price.
Remember gifts come in many different forms, so think about giving a gift that can't be wrapped but makes a difference in the future. For example, families may want to put money toward a child's education and it's relatively easy to make gifts in to a tax-efficient college savings vehicle. Merrill Edge offers a variety of college planning options that may be the right fit for your family.
The holidays are a time of giving, but don't let festivities cloud smart long-term financial decisions. If you feel like you need help budgeting, a financial professional can help you stay within your budget during the holiday season and beyond.
Merrill Edge is available through Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S), and consists of the Merrill Edge Advisory Center (investment guidance) and self-directed online investing. MLPF&S is a registered broker-dealer, member SIPC and a wholly owned subsidiary of Bank of America Corporation. Investment products are not FDIC insured, are not bank guaranteed and may lose value.