3 Tips to Help You Avoid Overspending This Holiday Season

The holidays are a time of tradition and family gathering, but they are also a season marked by rampant spending on ourselves and others.

Carefully crafted marketing campaigns have created the illusion of gift-giving expectations. There are expectations of who you need to buy gifts for and how much you need to spend on them.

The problem is that most people don’t have unlimited funds for gifts, but no one wants to be perceived as a Scrooge.

The key to sticking to your budget this holiday season is shopping mindfully instead of succumbing to the frenzy. Here are three tips to help you avoid overspending, for happy holidays instead of  Yuletide gloom.

Tip #1 - “Sale” doesn’t actually mean “savings.”

When we want something, our psyches like to play every trick in the book to convince us that we have to have it. We see a reduction in price as an increase in value and are more likely to make the purchase.

However, “sale” means “savings” only if you were already going to buy the item at full price or if you actually put the difference between the retail price and the sale price in your savings account. Otherwise, you’re simply spending.

Manufacturers know how the human mind is wired. In fact, large companies actually employ people to market their products specifically to human psychological weakness. They know that lowering prices will lead you to purchase more because you will think you’re saving money.

For example, have you ever fallen prey to the store cash racket? You buy $50 worth of merchandise and get $10 store cash to use at a later date. But what does the store actually sell for $10 or less? Socks? The candy next to the register?

You know when you walk in with that $10 store cash, you’re going to walk out having spent $50 more and earning another $10 in-store cash to use at a later date so you can buy $50 more to get $10 more store cash. Over and over.

Don’t fall prey to shrewd marketing strategies. Know your budget. Make a list (and check it twice) of the gifts you wish to buy this season, and buy only those gifts. In fact, buy them online, compare prices from different retailers, and bypass the “you-know-you-have-to-have-this” in-store marketing altogether.

Tip #2 - Compound spending is a nasty trap.

Most people have heard of compound interest--the glorious principle by which your money makes more money. But have you heard of compound spending? Compound spending is the pesky principle that says spending money causes you to spend more money.

Here’s an example: I have this friend; we’ll call him Joe. On Black Friday, poor Joe purchased a Google Home on sale for $79.99, $50 off the normal retail price. What a steal! (Except if you read Tip 1, you already know that he didn’t actually save a dime.) Sounds like a good deal, right?

Well, he wanted his new Google Home to communicate with his TV, so he bought a Chromecast, despite already owning both a Roku and a smart TV. His Apple music subscription was up, so he switched to Google Play music. Then, he bought a Google Home Mini because how else would he know the weather if he’s upstairs and the Google Home is downstairs?

He also needed smart light bulbs because light isn’t light if it’s controlled by a switch instead of your voice (and your Google Home). While he was considering buying a $200 smart thermostat, he realized how out-of-control his spending had become:

Google Home                                 $79
Google Chromecast                       $20
Google Play Music subscription    $9.99 mo
Google Home Mini                         $29
Hue smart lightbulb (4 pack)         $49
                                                       ---------------------
                                                       $186.99 + tax (+ $109.89 to keep the Google Play
Music subscription going for the whole year)

Instead of “saving” $50 on a Google Home, he actually spent $189.96–over 2 times the price of the Google Home! He also now has a useless Roku and smart TV, which I’m sure cost a sizable chunk of change when he initially purchased them. Considering all but one of the items he bought were Google products, I’m sure Google was happy to mark down the prices. In fact, just for fun, let’s see how much of a discount Google actually gave my poor friend.

Product                        Retail Price     Discounted Price

Google Home               $129                $79

Google Chromecast     $35                 $20

Google Play Music        $9.99/mo      $9.99/mo

Google Home Mini        $49               $29

                                     ----------        -----------

                                     $222.99          $137.99

Google discounted these products by a combined $85 and still managed to get my friend for more than the retail price of the Google Home.

But don’t worry about Google’s bottom line, they’ll make back that $85 with Joe’s Google Play Music subscription in 8.5 months.

This spending snowball effect might sound ridiculous, but I bet you’ve fallen victim to compound spending at least once. Ever bought something that needed batteries, but the batteries weren’t included? How about that new couch that necessitated a new Ottoman, side tables, and pillows?

Here’s the saddest thing, manufacturers bank on this behavior. They know that one smart bulb is going to turn into smart outlets, smart security systems, and smart coffee makers.

Be aware of how your initial purchase might cause or necessitate other purchases. If you or the person for whom you’re buying a gift can’t afford to purchase all the periphery items, it might be wise to avoid the initial one.

Tip #3 - Give the gift only you can give.

2017 has been a heck of a year globally, nationally, and—I’m sure—personally. Take a moment to remember what matters most: your relationships. You can never give your loved ones too much of your time, your love, or your affection.

Don’t make the quantity or the total price tag of your gift giving the center of the holidays. You are not your spending ability. You are worth more than any expensive electronics or fancy new clothes. You are the ultimate gift you can give your loved ones this holiday season. And the best part is, it won’t cost you a penny.

_______________________

By Ansley Fender of Fender Financial Services. Read an illuminating interview with Ansley at "Your Financial Future is Wide Open"