BAKERSFIELD, Calif. (KERO) — Inflation has impacted every aspect of our lives - from groceries to Christmas gifts. 23ABC checked in with a local financial expert about things to avoid as you head out on your holiday hunt.
While it may be tempting to pull out your credit card, Dave Anderson with Moneywise Wealth Management says to use caution with this approach. LendingTree data shows credit card balances increased over 15% from this time last year, the largest jump in two decades.
Anderson says not only will items be more expensive due to inflation, but the interest you'll incur for those purchases will also be higher.
“Because we have been in this interest rate environment, really going back to, you know, the early 2000s, where rates have been dropping, and now they're going up. And it may catch people by surprise,” Anderson said. “And so the credit card that maybe you had last year, remember the interest rate is adjustable. So as interest rates rise, you're gonna see the rates rise on that credit card, therefore costing you more.”
Anderson also says shoppers need to have a budget in mind before headed out, as retailers set up their displays to encourage impulse purchases.
“They spend all year planning on how to get you to spend more money in that store. You have to go in knowing what you're going to spend ahead of time. If you go in there without a budget, you don't really know how much you're going to spend, it's very likely that you're going to leave that store, having spent more than you wanted to so have a plan, have a budget and stick with it and your success rate's gonna go up,” Anderson said.
Anderson also says store credit cards and financing programs will cost you more than using a credit card.
Also, while shoppers may be tempted to overspend now with tax refunds headed our way in the spring, that strategy may land you in trouble down the road.
“If you're dependent on that refund, well, what happens when something happens in the meantime that requires you know, some more money? So it really puts you back,” Anderson said. “And also you have to remember, carrying debt is stressful. Like, it gets to your emotions and your quality of life is impacted by it. So the better you manage that, that will bring you much more happiness than getting a few extra gifts for Christmas.”
Here's how to make the most out of your money when it comes to purchases:
Before going out, NerdWallet recommends establishing holiday-specific budget categories - like gifts, travel, food and entertainment, decor and attire and charitable donations and tips.
Next, set price limits per gift and stick to them.
And consider a homemade present for some people on your list - like a grandparent or a child's teacher.
If you've already finished your shopping but are feeling the strain from overspending, NerdWallet says it's never too early to start planning for next year's holiday.
Experts recommend setting up a "sinking fund," which is a savings account that you contribute to over a planned period of time to meet a financial goal. It's not an "emergency fund." It's dedicated solely for a specific category - like the holidays.
Additionally, think about putting your holiday savings into a high-yield saving account. The account will save you the temptation to spend that money because those funds will gather interest over time.
