A Credit Card Free Holiday – Can it Happen?

Keegan Tanghe, AIF®

November 7, 2017

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Don’t we all just love the holidays? Having a nice, large Thanksgiving meal with close family and friends? Unwrapping presents during Christmas or Hanukkah, seeing the big smiles on the young kids and grandkids as they rip open that favorite toy they begged for? It may be pure bliss during the months of November and December, but come January and February, when those credit card statements come in, the stress starts to set in.

According to the article here, the average person takes more than five months to pay off that holiday debt. Many more carry that into the next holiday season, hence carrying it indefinitely and having it snowball out of control. Many people just make the minimum payment on credit cards throughout the year, and then when the holidays come about, go crazy with buying up everything, their balance goes up, and so does that minimum payment, which they soon cannot afford to pay. Defaults on credit cards and people trying to do balance transfers or debt consolidation soon become the norm and the house of cards (literally) soon falls.

44% of people surveyed stated that they were stressed out because of that extra holiday debt. Among all age groups, Millennials were most likely to go into debt around the holidays. People ages 24-35 were most likely to say they went into debt this holiday season with a rate of 14.3%. With the exception of 45-54-year-olds, the likelihood of going into debt decreased with age. Seniors were least likely to say they went into debt, with a rate of 7.6%.

So how can we mitigate or eliminate this holiday debt altogether?

Start a holiday-saving account: Set aside a holiday or Christmas budget at the beginning of each year! The problem that many people run into is that they do not set a holiday season budget and just spend, spend, spend. We have many clients who save anywhere from $50-200/month starting in January, so that they have their full budget come the 4th quarter. Or, if you are out shopping throughout the year and see a great sale on something that a family member or close friend would like, feel free to buy it, to pace yourself. If it’s within the budget, you should be ok.

Change your tax withholdings: It’s also a proven fact that many people over-pay their taxes throughout the year, over-withholding on their paychecks. The average person pays their amount of taxes by the spring or summertime, and the rest of the year is just spent paying more to Uncle Sam, lining his pockets. We have had many clients who come through our office in the 3rd or 4th quarter, and after we look at their tax returns for the previous year, as long as everything is a constant, we ascertain that they have already paid all of their taxes for the year. They can then increase their withholdings on their paycheck, thus bringing in more income monthly, to allow them to pay for the holiday’s cash. Solution: no post-holiday blues. Then, come January, we would review the client’s situation again, many times working alongside their CPA, to help them get to more of a point of breaking even or getting just a small tax refund back at tax time. This would allow them to better plan out their budget for the year.

Can you change your schedule: Other things to consider to have a credit card-free holiday is to work overtime, if your job allows it, or if you get a bonus throughout the year, to set that aside for the holiday season. But don’t count on it, as you can’t always rely on bonuses, commissions, or pay raises to occur when you want them to.

If you are a people-person and don’t mind strangers in your car, consider driving for Lyft or Uber. I believe they offer tiered bonuses if you complete a certain amount of rides during your first 30 days of working and always have promotions going on. That’s an instant quick bonus for one or two months of work. Many retailers, as well as Amazon, hire hundreds or thousands of seasonal part-timers, to help with the holiday rush. Maybe you can even use that employee discount at that retail store you’d be working at to get a good deal on some presents. UPS and FedEx also hire extra drivers and warehouse employees to sort through all of those packages that are being delivered the last two months of the year.

Conclusion: Get creative and don’t get complacent. You can do this!

Action items:

Understand where your money actually went.

There are many great apps out there which can track your spending throughout the year, and help you stay up on things, so things don’t spiral out of control

Set a realistic budget of what you will spend on family, friends, co-workers, and even clients, if it merits it in your situation, so you don’t break the bank

Work with a trusted financial advisor/coach that can hold you accountable on your spending, so you can keep pace to reach your financial goals

Good luck and let us know your progress! Enjoy the holidays and create some lifetime memories!

[1] http://www.magnifymoney.com/blog/featured/americans-holiday-debt-added-1003-average-year/

1. Taxes

Taxes are a significant expense for everyone, but High-Net-Worth Tax Strategies can help manage and reduce their impact on your wealth. Consider maximizing contributions to retirement accounts like IRAs and 401(k)s for tax advantages, and explore health savings accounts (HSAs) for additional tax benefits.

Key Tax Strategies:

Maximize contributions to tax-advantaged retirement accounts.
Utilize HSAs for medical expenses.
Consult a tax advisor for personalized tax-saving strategies.

2. Credit Cards

High-interest credit card debt can quickly erode your wealth. Implementing a strategic approach to managing credit card debt can help reduce the financial burden and improve your net worth. One effective strategy for managing credit card debt is to use the debt avalanche or snowball methods.

Credit Card Management Strategies:

Use the debt avalanche or snowball methods to pay down high-interest debt.
Consider consolidating debt with a lower-interest personal loan or balance transfer credit card.
Create a disciplined budgeting plan to avoid accumulating new debt.

3. Depreciation

Assets like cars and electronics lose value over time, impacting your wealth. Adopting a ‘buy and hold’ approach and making strategic purchasing decisions can help mitigate the effects of depreciation.

Combating Depreciation:

Keep vehicles for longer periods.
Buy slightly used cars to avoid initial depreciation.
Invest in assets that appreciate or depreciate less over time, such as real estate or classic cars.

4. Market Cyclicality

Market volatility can cause anxiety, but a diversified investment strategy can help manage the risks associated with market fluctuations.

Navigating Market Cyclicality:

Diversify your investments across different asset classes and geographies.
*Implement dollar-cost averaging to manage investment costs.
Consult with a financial advisor to tailor a diversified portfolio.

*Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets. (67-LPL)

5. Lack of Diversification

Putting all your investments in one basket increases risk. Diversifying your portfolio across various asset classes and sectors can reduce volatility and potential losses.

Diversification Strategies:

Invest in a mix of equities, fixed income, and alternatives.
Use broad market instruments like ETFs or mutual funds.
Regularly review and rebalance your portfolio with a financial advisor.

6. Unexpected Expenses

Unexpected expenses can disrupt your financial plans. Establishing an emergency fund is crucial to cover unforeseen costs without resorting to high-interest debt.

Preparing for Unexpected Expenses:

Build an emergency fund covering 3-6 months’ worth of expenses.
Automate savings to ensure consistent contributions to your emergency fund.
Adjust your budget to prioritize saving for emergencies.

7. Misaligned Investments

Investing without a clear plan can lead to poor financial outcomes. Aligning your investments with your financial goals, risk tolerance, and time horizon is essential.

Aligning Investments:

Define clear investment goals and time horizons.
Educate yourself about different investment types.
Seek personalized advice from a financial advisor to create Custom Investment Strategies.

8. Procrastination

Procrastination can significantly impact your wealth-building efforts. Starting early and setting achievable goals can make a big difference in your financial future.

Overcoming Procrastination:

Set short-term and long-term financial goals.
Use financial tools and apps to automate savings and investments.
Consult a financial advisor to create a tailored financial plan.

9. Lack of Planning

A comprehensive financial plan is the foundation of successful wealth management. An advantage of effective personal financial planning is that it can transform uncertainty into a roadmap for success.

Creating a Financial Plan:

Assess your current financial situation.
Set realistic and specific financial goals.
Develop a plan that allocates resources towards achieving these goals.

10. Lack of Proper Protection

Unexpected life events can derail your financial plans. Proper insurance and estate planning can protect your wealth and provide confidence.

Implementing Proper Protection:

Obtain adequate life, disability, and long-term care insurance.
Create a will and other estate planning documents for Legacy Planning.
Consult with a financial planner to assess your Financial Protection Strategies.

Conclusion

Preventing wealth erosion is as important as building wealth. By addressing these common pitfalls with strategic planning and professional guidance, you can safeguard your financial future. At Trilogy Financial, we specialize in Comprehensive Wealth Management Services, Retirement Planning for High-Net-Worth Individuals, and long term family wealth planning. Our services also include family wealth protection, risk management positions, and Custom Investment Strategies that protect and grow your wealth. Contact us today to learn how we can help you achieve your financial goals and secure a prosperous future.

Ready to Amplify Your Wealth today?

If you're ready to elevate your financial planning with our professional team, we invite you to schedule a meeting with us. At Trilogy Financial Services, our advisors in Corona are dedicated to crafting personalized financial strategies that align with your unique goals. Don't wait to start your journey towards financial success:

Schedule a Meeting: Reach out to us to arrange a one-on-one consultation with our financial professionals.
Give Us a Call: Prefer a quick conversation? Feel free to give us a call to discuss your financial needs and how we can assist. Call Us To Get Started. (844) 356-4934

Schedule a No-Strings-Attached Portfolio Review today and embark on a path to financial success guided by professional advisors. For more information and to schedule your consultation, visit www.trilogyfs.com/yourmoneyamplified. With the right knowledge and professional guidance, the journey of investing becomes an exciting venture towards achieving financial security and growth. This way, you're not just dreaming of an ideal retirement but actively working towards making it a reality.

*There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Investments Advice

The Tortoise and the Hare: How Fast Investments Can Slow Down Your Goals

Mike Loo, MBA

March 1, 2018

Over the course of working with so many individuals and families, I’ve found that many people think financial planning, investing, and retirement planning are a sprint to the finish line. While on paper, maxing out your 401(k) each year and building an all-stock portfolio for maximum growth potential seems like a good plan, fast and big investing can actually slow down your progress to your goals. Let’s look at why.

The Dangers of Little Liquidity I always enjoy working with enthusiastic young couples who want to do everything in their power to reach their desired retirement. However, in the process of focusing on their long-term retirement goals, they neglect their short-term needs.

For many of my clients in their 20s and 30s, I may recommend contributing enough to their 401(k) to get the employer match, if one is offered, and contribute some of their paycheck to build an emergency fund and savings. This can help them avoid focusing so much on their long-term retirement goals that they neglect their short-term goals, from buying a house to paying off student loan debt. I generally recommend that my clients build a reserve fund that can cover three to six months’ worth of living expenses.

Dipping Your Toes In Versus Diving Head First

I said it earlier but I’ll say it again; investing and financial planning is a marathon, not a sprint. I’d much rather be the tortoise—slow yet steady and consistent—than the hare—fast yet unpredictable—when it comes to my investing strategy.

One of the more underrated strategies for financial security is making consistent and periodic contributions to your portfolio over a long period of time. As I mentioned earlier, younger individuals and families may not have the income yet to max out their 401(k), but they can make consistent contributions and increase them over time as their income increases. Like the tortoise, saving for retirement and other long-term goals is all about perseverance and consistency, even if it is at a slower pace.

It’s easy to let emotions get in the way, and many investors fall prey to the newest investment strategy that claims a higher return on investment. But the fact of the matter is, there is no controlling or predicting the market. I tell my clients that instead of focusing on what they can’t control, it’s helpful to focus on what they can control: the capital they invest.

Whether the markets are high or low, consistent contributions can have a powerful long-term effect. Additionally, maintaining a well-diversified portfolio and rebalancing if needed each year can help ensure your portfolio matches the appropriate level of risk you’re willing to take. Adhering to this motto and disciplined strategy can help you avoid the common trap investors fall into: buying high and selling low, and chasing high returns.

The Risks of Aggressive Investing

Too often, financial advisors tell young individuals in their 20s and 30s to keep close to 100% of their portfolio in stocks. The theory is that young investors have decades to ride out volatility and make up for any lost returns. While this may work for some individuals, I’ve had a number of younger clients who don’t feel comfortable taking such risks, even if they have decades to try to make up for losses.

Investing entirely in stocks isn’t necessarily the way to go, even if it makes sense on paper. It’s nearly impossible to entirely remove emotions from investing. Too often, I’ve seen investors give up when their portfolio takes a big hit. They lose motivation to keep investing, and they struggle to keep their eyes on the finish line of their long-term goals.

Incorporating investments, like bonds, that offer lower returns and lower risk, may help you feel more confident in your portfolio and avoid the rollercoaster of emotions if your portfolio takes a hit during a downturn.

Next Steps

Like the tortoise and the hare, fast investments don’t mean you’ll reach the finish line first. While it can be difficult, it’s important to tune out the noise of the media and focus instead on what strategies make sense for your unique situation, risk tolerance, and short and long-term goals. While not as exciting, I believe slow and steady can win the race, and without as many speed bumps along the way.

As an independent financial advisor, my mission is to make a meaningful impact on the lives of my clients and the people they love. I help families make informed decisions with their money and pursue a strong financial future. If you’re interested in learning more about balancing your short and long-term goals, I encourage you to reach out to me. Call my office at (949) 221-8105 x 2128, or email me at michael.loo@lpl.com.