‘I’m a Financial Planner, and Here’s How I’m Preparing for Holiday Spending Amid Inflation’

Photo: Stocksy/Trinette Reed
The holiday season is always a big time for spending—on gifts, travel, dinners out, seasonal outfits, and more. But this year, your regular splurge could hit differently amid ongoing inflation. The consumer price index has remained well above typical levels since it began surging in 2021 and reached a new 40-year high this past June. Just last month, consumer prices were up 8.2 percent from the previous September, which means, if you’re preparing for holiday spending now, you might find yourself with less wiggle room than in previous years.

In fact, in a recent survey of 2,200 people conducted by investing app Robinhood, more than a third of respondents reported that the upcoming holidays will be a bigger financial burden for them than usual. There's also the additional mental burden of navigating inflation during the already high-stress season: 80 percent of the respondents in Bank of America’s recent Workplace Benefits Report said they were concerned about inflation, while 62 percent indicated feeling stressed about their financial situation. And the American Psychological Association’s report on stress from earlier this year identified inflation as a top stressor, called out by a whopping 87 percent of respondents.

“Starting open conversations with my friends and family members is essential to aligning on group values around spending money on gifts.”  —Sofia Figueroa, CFP, financial advisor at Ellevest

With these monetary and emotional pressures compounding on each other, Sofia Figueroa, CFP, financial advisor at investing platform Ellevest, anticipates that holiday spending will definitely be more stressful for her this year than it’s been in the past. As a result, she’s already preparing by “starting open and honest conversations with my friends and family members to align on group values and determine how we all currently feel about spending money on gifts,” she says. Having a similar conversation with your gift-giving circle can help ensure that no one feels obligated to spend beyond their means. One option she’s considering this year? A “secret Santa” or “white elephant” party, which “alleviates the pressure to give a gift to everyone in the group,” she says.

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Aside from shrinking your overall gift list among friends, however, there are also personal steps you can take now to mitigate financial stress when the festive season arrives. Below, Figueroa shares the ways that she’s preparing for holiday spending amid inflation this year.

5 key ways that a financial planner is preparing for holiday spending amid inflation

1. Creating a gift spending plan

Before she dives into holiday shopping in earnest, Figueroa plans to create a holiday spending plan that'll include her gift recipients, the type of gift she plans to get each person, and how much she’d like to spend on each. “This helps me understand what I can really afford to spend on gifts in total after my monthly fixed costs and savings are accounted for,” she says. Knowing that total dollar amount can also help ensure she doesn’t spend too much on the first couple gifts she purchases, leaving her without enough to use for the remaining.

If you create your own plan only to find that the amount you can allocate for gifts this year is lower than you’d hoped (inflation strikes again), Figueroa suggests looking to alternative, less expensive gift options (more on that below) while also planning to reserve some change for next year’s gifts in a high-yield savings account (HYSA) in the early part of 2023. “With the Federal Reserve continuing to raise the federal funds rate, we’re seeing the interest rates on HYSAs continue to rise,” she says.

2. Revisiting her day-to-day budget

Given the additional monetary pinch of inflation this year, Figueroa is also preparing for the extra holiday spending by seeing where, in her everyday expenditures, “she can scale back, at least temporarily, to allow a little flexibility for holiday fun,” she says. “Once the holidays are over, I’ll be sure to consider the amount I spent this year on gifts and other holiday festivities when thinking about how much to save each month for next year’s holiday budget.”

3. Considering alternative gifts

While giving less is certainly a fair way to manage a tight, inflation-strapped budget this holiday season, Figueroa also plans to consider less costly alternatives to gifts. “There are numerous ways to show your love and appreciation beyond physical gifts,” she says. And with the pandemic slowly receding alongside the growing availability of COVID-19 vaccine boosters, one of those ways is to simply spend quality IRL time with people.

“This year, I’ll be throwing an intimate dinner party for my friends,” says Figueroa. “It’ll still cost me some money, but I can fit it into my inflation-adjusted budget. And the care I put into setting the table and cooking the food will show my loved ones how much I appreciate them.” If you’re choosing to do the same and looking to minimize spending, she also suggests going the potluck route and asking everyone attending to contribute one dish.

4. Taking advantage of (early) sales

Because Figueroa still plans to give physical gifts to her immediate family members, she’s also prioritizing sales this year to snag those gifts at lower prices. That also means starting the gift-buying process as early as right now, she says: “Early shopping can allow you to avoid supply-chain problems impacting order fulfillment and may even allow you to score a better deal.”

In fact, Figueroa has already planned out a few gifts based on what she's heard her close friends and relatives say, in passing, that they're coveting. “I keep a note on my phone if I hear someone mention a gift that they’d like throughout the year, so I can plan ahead,” she says. “True story: I’ve been hanging onto an item since May to give as a gift this year to a particular loved one.”

When you know what you’re looking for in advance, you can also plan around the big Black Friday and Cyber Monday sales and avoid “getting caught up in the discounts or buying items unnecessarily,” she adds.

5. Sticking to her investing plan

Figueroa’s investing plan is her north star—especially in an inflationary time wherein it’s easy to quickly overspend. “Committing to my regular retirement and investment contributions is a top priority during such a volatile period, so I know that my long-term goals won’t be affected much by current cost-of-living changes,” she says.

If you find that you’re having to shift your budget so much to accommodate holiday spending that you’re diverting money from your investing or retirement plan, that should be a sign that you’re dropping too much on holiday expenditures, despite how tempting it is to do so amid inflation, she says.

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