The holiday season has passed. You're past New Year's Day and now you look back at the damage to your pocketbook from December's holiday shopping. If you're like many people, you might find that you have drastically overspent during December. That could mean scrimping in other areas of your budget, January credit card bills that you can't afford, or both. But what's in the past is done and you can't change it. All you can do is take a look at what happened and decide what to do now and what you can change for your behavior going forward.
What is a financial holiday hangover?
A financial holiday hangover is in many ways the same thing as a regular holiday hangover. With what we traditionally think of as a hangover, you party too much (usually involving too much alcohol) and then wake up the next morning with a big headache. Not to mention regret and a conviction to not do that again.
A financial holiday hangover can exhibit many of the same symptoms — they just show themselves in a slightly different way. Instead of a wild night out, it might be a week or month of spending without thought to consequences. And instead of physical pain, a financial holiday hangover comes with pain to the bank account.
Why do people overspend during the holidays?
There are a couple of common reasons that people overspend during the holidays. Many people travel during the holidays to see friends and family. If you haven't budgeted during the year for this extra expense, you can find yourself with hundreds or thousands of extra expenses for airfare, lodging, or other forms of travel. And that's not even considering the fact that travel during the holidays is notoriously more expensive than travel at other times of the year.
Another common reason for overspending during the holidays is the additional expense of gift-giving. Many holidays including Christmas have a tradition of giving gifts to friends and family. Again, if you haven't budgeted or planned for this extra expense, you may find that you end up spending more than you have. Extra activities or dinners eating out while gathering with friends and family can put even more of a strain on your finances.
Don't beat yourself up
The best way to get yourself back on track is to try and look back at what happened. It's best to not try to do this in the heat of the moment — instead, try and wait a few weeks to give you time to process what happened and be able to think about it rationally. The worst thing that you can do is to beat yourself up over your mistakes and ignore what might have triggered your overspending behavior.
Instead, acknowledge that everyone makes mistakes or does things that they later regret. And rather than ignoring those decisions, make a plan to change the outcome going forward. There could be two parts to that — you'll want to plan what to do next time and also plan how to pay down any debt that you've incurred.
Start a budget (or update the one you have)
The number one thing that you can do to improve your financial health is to start and stick to a budget. Many people have a negative connotation with the word budget, but a budget is really only a tool. It's a way to help you not spend money on things that aren't important to you, so you still have money left for the things that are important to you.
If you don't already have a budget in place, set a goal to start one. Budgets can come in many formats and sizes, starting with just a few numbers on the back of an envelope. Write down your weekly or monthly income, and then budget your expenses for the same time period. Online budgeting tools that connect to your bank or credit card can be a tool to help you understand how much you're currently spending each month in certain categories.
If you already have a budget in place but blew through it with holiday spending, don't despair. Throwing out your budget and going back to living without one is unlikely to lead to financial happiness. Instead, recognize that a budget is meant to be something that you regularly review and update. Adjust your budget categories and amounts as needed and make a plan for going forward.
This is how to pay off your holiday (and other) debt
The next step to address your financial holiday hangover is to look at any debt that you incurred with extra holiday spending. After creating a budget, one other thing that you can do to improve your overall financial health is to pay down and eliminate your debt. This is true whether your holiday debt is the only debt you have or whether it is just getting added to your pile of existing debt.
There are several different strategies for paying down your debt, and they all start with acknowledging how much debt you have. Write down all of your debts, including the total amount owed, the minimum monthly payment, and the interest rate. Once you have a complete understanding of your situation, you can make the best plan to pay off your holiday debt. Debt consolidation, a credit card with a 0% introductory rate, a personal loan or just making extra payments can all be solutions depending on your exact situation.
Make a plan for the holidays 2022
As you come out of your financial holiday hangover, it's time to come up with a plan for next year's holidays. While December 2022 may seem like a long way off, it will be here before you know it. And if you don't make any changes to your finances or your behavior between now and then, it's possible or even likely that you'll find yourself right back in the same place next year. Fortunately, there are a few concrete steps that you can take to put yourself in a better position when the holidays come around again.
One thing that you can do to plan for next year's holiday season is to set up a sinking fund. A sinking fund is perfect for large expenses that only happen once or twice a year. Some examples where a sinking fund is perfect are annual insurance premiums, property taxes, and of course, holiday gifts.
To create a sinking fund, first set up a separate banking account for your sinking fund. Many banks and credit unions allow you to set up sub-accounts that you can label for specific purposes like holiday gifts. Then decide how much you want to spend next year during the holidays (for gifts, travel or activities). Let's say you think $1,000 would be enough — then divide that amount by the number of paychecks you have remaining. If you are paid monthly and have 11 checks remaining, set up a rule to transfer $90.91 ($1,000 divided by 11) into your account each time you get paid. Then when December comes around, you'll have $1,000 in your account ready for you to spend on the holiday season.
The bottom line
A financial holiday hangover shares many similarities with a physical hangover in that you have a brief moment of happiness followed by regret, shame, and pain. If you find that you've overspent this holiday season, there are a few steps that you can take to recover and make sure to put yourself in a better place for next year. Set up a budget and make sure that you are spending less money than you earn. Then make a plan to pay down any debt you've incurred and set up a sinking fund or something similar to help you prepare for next year. December will be here again before you know it, so make sure you are on a solid financial footing.