Don’t let the pandemic cause you to overspend

With the holiday shopping season underway, are you prepared to avoid overspending?

The temptation to go overboard could be greater for some this year due to the pandemic. Adequate preparation is key to staying on track, financial counselors advise.

Depending on where people are in their personal lives, “the pandemic could have an impact,” said Amy Lins, vice president of Enterprise Learning with Money Management International. The nonprofit promotes financial wellness, assists consumers in overcoming financial challenges and has offices in Chicago and across the country.

Many people reduced spending last year due to the pandemic, Lins said, but many people feel more optimistic as things have reopened.

“They are getting out more, moving back into some of their pre-pandemic pattern of spending more on eating out, on decorations or having a holiday party this year which they might not have done last year,” Lins said. “They are going to holiday parties and feeling like they need to have a few more gifts.”

There is the desire to be back to normal, she said.

“People may have been conserving last year, not knowing if their job might be impacted and wanting to be cautious with their spending,” she said. “Now they may see their job as being in a more stable position, or they started a new job and feel like they can spend more.”

The National Retail Federation expects holiday sales could shatter previous records this year. It forecasts sales will grow to between $843.4 billion and $859 billion in November and December, an increase of between 8.5% and 10.5% from 2020.

The pandemic has resulted in a lot of pent-up demand throughout 2021, said Katherine Cullen, senior director of industry and consumer insights with the retail federation.

“We’re hearing from consumers who are spending more, that they really are looking to make the holidays feel special and to make up for last year,” she said.

If recent trends continue, consumers likely will rack up more credit card debt this holiday season. Credit card balances dropped during the pandemic; they are $123 billion lower than at the end of 2019, according to the Federal Reserve Bank of New York. But they have started to rise again. They jumped by $17 billion in both the second and third quarter of the year.

“We are beginning to see the reversal of some of the credit card balance trends seen during the pandemic, namely reduced consumption and the paying down of balances,” Donghoon Lee, research officer at the Federal Reserve Bank of New York, said in a media release earlier this month.

Sixty-nine percent of Americans say they previously overspent during the holidays, and 41% say they experienced a negative financial situation because of holiday spending, according to respondents to TD Bank’s 2021 Merry Money Survey. Thirty-one percent have tapped into emergency savings to pay for holiday expenses.

To avoid financial pitfalls this holiday season, start by creating a written holiday budget, said Larry Powell Sr., founder of Homewood-based Guardian Insurance & Financial Services.

“When you write something down, you gain authority over it, and it keeps you from being a spontaneous spender,” Powell said.

Look at your household budget and determine how much you truly can afford to spend, both Lins and Powell said.

Before spending a dime, have a conversation with the family, Lins said. People are often triggered to overspend because they don’t want to disappoint their family, but they should realize your family doesn’t want you getting into financial trouble because you’ve busted your budget on holiday gifts for them, she said.

“Open communication is key,” said Lins. “I think the bottom line for people is they have to be on the same page as a family. Set expectations so there’s no disappointment or feelings that ‘Oh, they gave me a gift, now I have to give a gift.’ ”

When putting together your gift list, determine how much you want to spend on each person and prioritize, Lins said.

Powell advises using debit cards instead of credit cards to help keep you on budget.

If using credit, Lins said you shouldn’t charge more than you can pay off in three to six months.

She also advises consumers to proceed with caution when considering so-called buy now, pay later offers. Such offers enable consumers to get their purchases without having to pay upfront and pay overtime in installments tied to debit cards, bank accounts or credit cards, she said.

The offers are fine if you’ve made a solid plan to pay off the debt, said Lins.

But people get into trouble if suddenly those payments add up to more than they can afford. If payments come out of their accounts, they can come up short for other bills. You can get into situations where you’re overdrawing accounts, getting hit with fees and interest, going into collections and getting behind on other primary expenses like car payments, groceries and housing, Lins warned.

It all goes back to your household budget.

“You have to keep track of what’s going to come due in January, February and March,” Lins said.

When shopping for gifts, compare prices and quality.

“Consumers are paying a lot of attention to prices in this period of inflation,” and discounts and promotions remain a key part of retailers’ holiday strategies as they compete for consumers’ business, Cullen said. She expects discounts and promotions to continue throughout the holiday season.

But she advises consumers not to wait until the last minute to shop particularly given supply chain challenges retailers continue to face due to the pandemic.

Retailers have taken steps including bringing in inventory earlier in the season to make sure they have products available either online or in stores, she said, but noted “we are telling people to shop early particularly for top items, top toys you’re looking for and electronics. It also gives you more time as things are back ordered or delayed.”

She recommends consumers check out what retailers are saying on websites and mobile apps regarding when orders are needed to get items on time. The sites in many cases have up to date information on what is in stock and how quickly it’s selling, she said.

Among recommendations by Money Management International to keep gift giving expenses from getting out of line:

„ ■ Consider gifts that don’t cost money, such as your time to help a relative or friend with a project or service.

„ ■ Give one gift per household.

„ ■ Split the cost of a special gift with someone. „

■ Consider regifting. „

■ Draw names and only buy gifts for the names drawn.

To make sure you’re prepared next holiday season, quickly get to work on your 2022 family budget, and pursue a strategy of saving all year long for next year’s gift list, said Powell.