Last Week’s Question of the Week: At what age must you BEGIN withdrawing your RMD’s (Required Minimum Distribution) from your tax-deferred accounts? ANSWER: After reaching age of 70-1/2.
HOST: So today we are going to talk about how to limit our increasing of debt over the holidays as we are watching our holiday spending?
KLAAS FINANCIAL: Yes, so we talk a lot on this show about watching our debt as we get closer to retirement and the holidays are a really difficult time to control our spending and resist adding debt. Today we want to give you some tips on how to manage your holiday spending. But, first some facts:
- 74% of Americans said they failed to budget properly for the holidays in 2017.
- Americans continue to spend more every year on shopping.
- Last year, Black Friday and Cyber Monday set records for online shopping with over $11.6 billion in sales over the holiday weekend.
- Projections for 2018 retail spending is likely to increase by 4% or more. Americans will spend an even greater share of disposable income this holiday season on gifts, household items, clothing, appliances, electronics and more.
- Problem that exists is many people carry some residual debt from the holidays — credit card debt — for a few months or much longer. With rising interest rates we are seeing APRs of 15% to 25% or more on credit cards which carries debt into bigger balances when not paid off.
Please remember, paying yourself first is not only something you truly deserve, but a behavior you’ll never regret. So, give yourself a gift this holiday season and work on your retirement plan.
HOST: So what other tips can you suggest as we are making holiday gift buying decisions?
KLAAS FINANCIAL: Here are a few suggestions to help avoid going overboard with holiday spending:
- Set a holiday spending budget that works with your plan and stick to it. Don’t go into debt over Christmas because it can derail your bigger financial plans.
- Do your research on where the best deals are for shopping, but resist temptation to spend more than you have allotted. Look for free shipping and watch out for the hidden costs of Christmas such as larger food bills, hosting or bringing items for parties, the expense of cards, mailing of gifts.
- Pay with cash and only spend as much cash as you have allotted in your budget. If you don’t have cash then you can’t afford it.
- Handmade gifts such as crafts, baked goods or music playlists.
- Instead of giving gifts to friends, arrange a potluck dinner or dessert gathering.
- Preparing for the holidays doesn’t have to be a terrifying exercise every year. If you set a reasonable budget and avoid racking up debt, you can still show your loved ones you care, while also protecting your financial future.
A statistic from the Organization for Economic Cooperation and Development (OECD): Consider the fact that the personal savings rate for Americans in 2018 is expected to be around 3.72% as compared to 2015 where the savings rate was over 6%. Good rule of thumb is that you should be saving 10% or more each year towards retirement.
HOST: What about borrowing from our retirement accounts or savings accounts for Christmas? Not a good idea?
KLAAS FINANCIAL: Definitely not.
Taking money from your retirement accounts for emergencies may be one thing, but certainly not for the holidays. Remember that if you are under 59 ½ taking monies from an IRA account would be subject to a 10% early withdrawal fee, along with taxes. Not to mention the compounding of your retirement nest egg that you will be missing out on.
Good GOALS to employ:
- Try to create alignment between your spending and savings habits and life goals. We understand that sometimes it Is Difficult to Think Long Term because many of us don’t consider our immediate financial decisions in relation to our larger financial future. Identify and prioritize your goals. It’s tough to prioritize spending if you haven’t taken the time to identify and prioritize your financial goals. While goals like saving for retirement sometimes are on the fringes of your mind.
- Maintain a budget at every stage of life. Budgeting provides a clear and consistent picture of your cash flow—what’s coming in vs. what’s going out. Without it, you can’t optimize savings and spending, pursue your personal and financial goals with confidence.
- Evaluate your spending needs versus wants. Unchecked spending is the leading cause of budgeting gone awry: discretionary spending—should be prioritized to prevent overspending.
Adopt a positive attitude about money. Money creates freedom, it doesn’t restrict it. Pursuing financial independence requires embracing financial management, which includes becoming familiar with basic financial terms and principles. And it isn’t as complicated as many people think—especially if you’re working with an experienced advisor.
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.