For many individuals, the end of the calendar year has a number of different financial implications. With the holidays come family traditions, which quite often include giving gifts, as well as vacations and trips to see family members. It’s also the beginning of tax season, which means that we need to pay attention to lowering our annual tax bills.
Most taxpayers find that one of the best ways to reduce their short-term (as well as their long-term) tax burden is to maximize their annual contributions to their individual retirement accounts. Here are some tips for taking charge of your holiday spending in order to make it most likely that you’ll be able to max out your IRA contributions this year.
Avoid Buying Gifts on Credit
As with virtually any other type of personal consumption, it’s better to buy your holiday gifts with cash rather than paying by credit. It’s worth noting that this doesn’t mean you shouldn’t use your credit card. Some credit card companies provide you with additional warranties and or rewards points or airline mileage for purchases you make. By using a credit card you’ll actually come out ahead, provided that you pay your bill in full each month.
Have a Budget For Your Holiday Spending
The best way to make sure that you don’t end up having to pay finance charges for the gifts or travel you purchase is by having a budget. It’s often best to approach this process by identifying how much you can reasonably spend over the holidays and selecting gifts that fit the budget, rather than deciding on gifts first then trying to build a budget around them.
Stick to Your Budget
Regardless of how much you plan to spend over the holidays, be sure to stick to that budget. The temptation to indulge our family members can be strong, so you may be more likely to stick to your budget if you actually reduce it to writing so that you can refer to it throughout your gift buying and vacation planning process.
Talk With Your Family
If the process of taking charge of your holiday spending will represent a change from how you’ve done things in the past, you may wish to speak with your family before the holidays roll around. Allowing everyone time to readjust their expectations can reduce the chances of disappointment or negative feelings surrounding a less luxurious holiday vacation or less expensive gifts.
Perhaps most importantly, you should begin the process of taking charge of your holiday spending as early as possible. The more time you have two prepare a budget and come up with a plan for sticking to it, the more likely it will be that you’ll have the available funds to maximize your IRA contributions and make other smart tax decisions in 2021.