Smart Choices for Holiday Spending: A Homebuyer’s Guide to Financial Freedom
The holiday season, a time of joy and celebration, can also bring financial challenges, especially for those aspiring to own a home. Whether you’re already pre-approved and actively searching for your new home, or you’re just getting started, it’s important to know how holiday spending (especially the desire for a little holiday splurging) affects your ability to buy a home. Let’s dive into smart choices for homebuyers to stay financially responsible during the holidays.
Create a Realistic Holiday Budget
Setting clear boundaries for holiday expenses is crucial. Use cash when you can, and keep your credit card utilization low, ideally around 30% or lower. This ensures that you can enjoy the season without straining your finances. Remember, when your credit card balances go up, so does your monthly payment. This can affect your credit score as well as how much you can afford for your new home.
(Wondering what makes up your credit report? Click here to learn more about understanding your credit. )
Save Throughout the Year
Rather than relying on credit cards or depleting savings, adopt a proactive approach by saving a portion of your income each month. We know the holidays arrive each year at the same time, so planning ahead is a great way to train your mind and your spending habits early. This strategy ensures you’re financially prepared for all occasions, including the holiday season.
Prioritize Your Goals
Make sure your holiday spending aligns with your broader financial goals. Consider how each purchase fits into your long-term objectives, such as saving for a down payment on your first home or upgrading to your dream home. This is not to say you can’t give gifts to loved ones or host a holiday party. Being financially responsible is an ongoing process. Instead of spending the next six months paying off holiday debts (the average time it takes people to pay off $1,000), stick to your budget and remember why you’re doing this to begin with! If your goal is homeownership, why delay it several months by needing to pay down debts or correct credit scores from holiday splurging?
Monitor Your Spending
To stay on track with your financial goals during the holidays, it’s crucial to monitor your expenses. Utilize budgeting apps or spreadsheets to keep a close eye on your spending. Regularly review your expenditures and make adjustments as needed to ensure you’re within your budget. When asked by the department store clerk if you’d like to open a store credit card to save 30% on your purchase, be mindful of what you’re risking by “saving” a small chunk of change. New credit inquiries affect your credit score by 5, 10 or 20 points, plus if you aren’t able to pay the balance in full before your next billing cycle, you’re now paying interest on that holiday gift. Doesn’t really sound like you saved much, does it?
Avoid Credit Pitfalls
Understand the concept of credit utilization and how it can impact your credit score. High credit utilization, especially during holiday shopping, can negatively affect your credit score. Responsible holiday shopping involves spreading out purchases, taking advantage of sales without overextending credit limits, and prioritizing saving over spending. Remember, you deserve a gift this season, too! Let that gift be financial freedom and flexibility.
Unsure of Your Budget? Ask an Expert!
Seek advice from professionals and utilize educational content on budgeting and credit management. Take advantage of these resources to enhance your financial literacy.
Financial responsibility is a year-round commitment. By staying on track throughout the holidays and the entire year, you can protect your financial well-being, reduce stress, and work confidently toward homeownership. Your path to owning your dream home begins with the choices you make today. Enjoy the holiday season, stay financially responsible, and look forward to a brighter financial future.
To find out more about budgeting to buy a home, click here to schedule a quick mortgage action planning session with our team!
