Splurging During The Holidays - Worth It?

Picture this: You're walking through a mall in December.

The decorations are mesmerizing, holiday music fills the air, and suddenly, you find yourself holding shopping bags you hadn't planned on carrying. Sound familiar? You're not alone.

Every year, millions fall into this enchanting yet financially dangerous holiday trance, where our carefully crafted budget plans dissolve as quickly as sugar in hot coffee.

It's the end of the year, and we're all spending more. Whether it's buying gifts, planning gatherings, or going on trips, we find ourselves splurging more than usual.

In fact, brands understand this psychology perfectly. This is why you'll see many advertisements during the holiday season, with companies allocating larger marketing budgets specifically for this period.

The holiday spending phenomenon is so powerful that major brands invest astronomical amounts in capturing our attention during this period.

Take Apple, for instance.

In 2023, they increased their holiday advertising budget to over $3 billion globally, a 40% jump from their usual quarterly spending.

Similarly, Coca-Cola, known for its iconic holiday campaigns, typically allocates about $1 billion for its November-December advertising push. These companies aren't just throwing money around – they're capitalizing on our heightened emotional state and increased willingness to spend during the festive season.

Why do companies invest so heavily in end-of-year marketing?

The numbers tell the story: consumer spending typically increases by 40% during the holiday season compared to regular months. Marketing experts call this the "golden quarter" – when shoppers are most susceptible to emotional purchasing decisions.

So, have you been over-spending or splurging?

Because if you don't know how to control your spending habits, you'll always be going around in circles with your finances (assuming your active income doesn't change).

Let me explain this common financial pattern that many people fall into. Consider someone earning $5,000 monthly, totaling $60,000 annually.

They're aware of the conventional financial wisdom that suggests saving at least 15% of income, which would amount to $9,000 annually.

Initially, they diligently set aside this money throughout the year, doing everything right by automatically transferring $750 monthly to a savings account. They pay their regular expenses like rent, utilities, groceries, and transportation from the remaining $4,250 each month.

However, when December arrives, they face what financial advisors often call the "holiday splurge syndrome." That carefully accumulated $9,000 in savings quickly disappears:

$5,000 goes toward an elaborate international vacation, $1,500 for the latest flagship smartphone, and the remaining $2,500 gets spent on holiday gifts, year-end parties, and seasonal activities.

Come January 1st, they're back to zero, starting the same cycle again.

This pattern creates an illusion of good financial habits throughout the year, but the annual holiday spending effectively erases all progress toward long-term financial security!

They're essentially trading their future financial security for immediate gratification, staying trapped in a cycle that becomes harder to break as time passes and significant life expenses increase.

After ten years of this cycle, the opportunity cost becomes staggering. If that $9,000 annual savings had been invested instead of spent, even with a modest 7% average annual return, it would have grown to $124,344 over the decade. That means earning an extra $34,344 just by letting your money work for you instead of spending it all during the holidays.

So how can you still spend if you need to?

Check Your Earning Capability

Assuming the holiday spending is going to be $9,000, but if you can recover without excessive strain, go ahead and spend.

After all, it's once a year, and it brings you joy. If you can truly afford it, happiness often ranks higher than merely having money in your bank account.

You can consider these aspects for the following year's income:

Calculate Your Recovery Rate: If you spend $9,000 on holidays, how many months of additional income would it take to replenish this amount? A good rule of thumb is the "3-month recovery rule" – if you can rebuild your savings within three months through your regular income and side hustles, you're in a safer spending zone.

Assess Your Income Stability: Are you in a growing career with consistent raises? Do you have multiple income streams? Someone with a stable job plus a successful side business has more flexibility for holiday splurging than someone relying solely on a fixed salary.

Consider Your Future Earning Trajectory: If you're in a field with clear advancement opportunities or developing valuable skills, your future earning potential might justify some current celebration – just ensure you're actively working toward that higher income.

Decrease The Volume

What if you don't have that earning capability?

Then, you shouldn't splurge because you'll never be able to achieve financial independence if you consistently deplete all your funds by year's end.

But there's another way to achieve this without compromising your wonderful holiday experience too much. Decreasing the volume simply means spending less on what you want to enjoy.

Let's look at the micro situation first. If you plan to spend money on a bottle of wine, you could order two glasses instead. Basically, drink less.

In the macro picture, perhaps you can choose a four-star accommodation instead of staying in a five-star hotel.

Then, this year, skip upgrading your iPhone to the latest version. For the record, I’ll be able to use my smartphone for about 3 years before it has an issue. And I’ll only change my phone if that happens, unless I need better specs to help me do my work.

You get the idea, right?

Two Ideas To Spend More Comfortably For The Holidays

Idea #1: Create a Holiday-Specific Fund

Create a dedicated "holiday fund" that you can build up gradually throughout the year. Just imagine—by setting aside $300 a month, you'd have a cool $3,600 to spend come December! That means guilt-free splurging on gifts, decorations, and travel while your regular savings stay untouched and stress-free.

Idea #2: Practice Strategic Timing To Purchase

Take advantage of off-peak seasons and early-bird deals. Book your holiday travel during shoulder seasons when prices are lower. Purchase gifts throughout the year when you spot good deals rather than buying everything in December when prices are at their peak. This approach can help you enjoy similar experiences at a fraction of the cost!

Yes – it requires some discipline.

However, this is only temporary. If you have money left, you can use that money to be invested so that you have the chance to earn more later on. And I'm not referring to investing with the understanding of just buying an asset class (stocks, crypto, etc.).

Investing could mean developing skills or covering operational costs to start a side hustle business as well. All of these need some seed funding to get started. When you have an online business, you'll also need funds for advertising.

But Here's The Controversial Point:

In my book, I do not advocate saving merely to be rich or living frugally. One of the spending rules that will always be worthy is for your family. You cannot take that away.

While most financial advisors preach strict saving and investment rules, life isn't just about accumulating wealth.

Here's why:

Family memories have immeasurable ROI. While you can calculate the return on investment for stocks or real estate, you can't put a price tag on your child's face lighting up during their first-holiday experience. These moments form the foundation of family bonds that last generations. Sometimes, forever.

Happy holidays.