The five weeks between Thanksgiving and the first of the New Year account for 20% of our country's annual retail spending. So, it's no surprise that this short window of flurried shopping has a way of bringing about overspending temptations to even the strictest of holiday budgeters. Even if you know the tricks to avoid overspending, like avoiding store card offers and creating and committing to a gift list, tempting deals, unexpected holiday gift exchanges, parties and growing "wish-lists" can quickly derail a holiday budget. But, have you ever thought about the real, long-term costs of overspending each holiday season? Here are some examples of what overspending your budget by $500 each year really means in the grand scheme of things. (For related reading, take a look at Top Holiday Budget Busters.)
IN PICTURES: Top 6 Mindless Money Wasters
- Delayed Savings
Low deposit interest rates can tempt you into believing that saving isn't even worth it. And while it's true that you won't get rich from interest payments, not saving is lost money. By prolonging the years that you overspend, you are, in turn, delaying the amount of time you build savings.
Suppose that you commit to a strict holiday budget, spend $500 less for 10 years on holiday gifts, and instead put the money in a savings account paying just $1% interest annually. In 10 years, you would have $5,283 saved. Wait two years to begin saving, and you'll have $1,099 less in savings over the course of 10 years.
- Credit Cards
Of course, the big whammy to your holiday budget comes in the form of charging "bargains" that you cannot immediately pay off. Let's suppose that you encounter an irresistible deal offering an additional savings to cardholders. As a result, you overspend by $500 that you cannot pay off in full the next billing cycle. Suppose you make a $50 payment toward the charge each month and your card charges 18% interest. You'll be paying for the purchase right up into next year's holiday gift-buying season, as it will take 11 whole months to resolve the debt. On top of that, you'll have paid $45 in interest.
The situation is far worse if you can only afford the minimum payment of $15 a month. By the time you've paid the amount off nearly four years later, you'll have spent $200 in interest payments.
- Car Payments
It's hard to imagine that a minor holiday shopping spree and auto payments have a significant correlation, but it's true. Imagine you have a 48-month, $15,000 auto loan with a 10% annual interest rate. If you paid an additional $500 each December toward the loan, instead of on holiday purchases you'd own the car outright six months earlier.
- College Savings
You might justify overspending $500 as a small cost for the joy your little one gets from all his or her holiday surprises. But, putting that money toward future college expenses in 15 years can have a much bigger payoff for both you and your child. Dedicating just $40 a month to college savings will amass a nice college nest egg of over $9,000, even if the money is earning a modest 3% over the course of 15 years.
- Certificate of Deposit
While deposit rates are anything but dazzling this holiday season, there are plenty of certificate of deposit products that do not require a minimum balance, and will still get you a lot further than overspending your holiday budget. Suppose that instead of overspending your holiday budget by $500 this year, you took that money and opened a four year certificate of deposit. If it earns 1.64%, and compounds interest daily, in four years, you will not only have the $500 waiting for you, but will have made $34 in accumulated interest, just for not spending. (For more information on credit card blunders, see 6 Major Credit Card Mistakes.)
IN PICTURES: 8 Easy Ways To Slash Your Holiday Budget
The Bottom Line
Advertisements touting "the lowest prices ever" and the pure excitement of spotting the perfect gift can tempt even the most resolute budgeters to veer from their saving missions. But, realizing the real costs associated with those "great deals" helps keep you on track to building the real gift that keeps on giving, financial security, long after the holiday season ends. (For addition reading, check out Money Market Funds: A Better Savings Account.)
Find out what happened in financial news this week. Read Water Cooler Finance: Insiders, Door Busters And Debt Contagion.
Personal FinanceHere are the simple financial Ten Commandments that, when faithfully followed, can lead to a secure economic future.
ProfessionalsLearn more about what project managers job, the qualifications necessary for the position and the most common careers for these professionals.
Credit & LoansCashing in an IRA to deal with outstanding credit card balances may not be the best way, but sometimes it's the best available way. Here's how.
Personal FinanceEven if you’re a finance or statistics expert, you’re not immune to common decision-making mistakes that can negatively impact your finances.
Credit & LoansDiscover how the Walmart MoneyCard and the Walmart credit card have different benefits that may influence your decision on which one to choose.
SavingsLearn 10 key habits for achieving financial freedom, including smart budgeting, staying abreast of new tax deductions and the importance of proper maintenance.
Credit & LoansIt'll cost you more, but borrowing is definitely doable. Here's how to proceed.
BudgetingThe 2016 race to the White House will largely be determined by who can spend the most money. Here is a look at how much it will cost to win the presidency.
Credit & LoansHoliday expenses can drown you in debt. Find out how to avoid this festive spending hangover.
BudgetingDoes your budget not allow you to have expensive hobbies? Here are six great ideas for occupying your free time without spending money.
Apple Pay is a mobile payment system created by Apple to reducing the number of times shoppers and buyers have to pay for ... Read Full Answer >>
Consumers can use their Walmart credit cards to shop at Sam's Club. However, they cannot use their Walmart credit cards when ... Read Full Answer >>
Walmart offers two types of credit cards: the Walmart MasterCard and the Walmart credit card. How to Close Your Walmart Credit ... Read Full Answer >>
The Walmart credit card does not charge annual fees to its cardholders. It does, however, have other fees associated with ... Read Full Answer >>
NetSpend prepaid MasterCard and Visa cards are popular prepaid debit cards requiring no minimum balance and no credit check. ... Read Full Answer >>
The Best Buy credit card can only be used in Best Buy stores and when making purchases online through the Best Buy website. ... Read Full Answer >>