Saving in a Season of Spending

Saving in a Season of Spending

November 22, 2022
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Happy Thanksgiving week to all of our readers! I know that I can speak for Alex and myself when I say that we are very thankful for you all. We greatly appreciate your interest in reading these each week and are humbled that you take time out of your lives to listen to what we have to say. I encourage all of you to keep engaging with us when we write these because it lets us know that you are reading, and it helps us gauge your interest in different topics. If you ever have any suggestions for topics that you want us to write about, please send them our way! We try to produce content surrounding relevant topics and what could be more relevant than a question or a problem from one of you? As always, please continue sharing the blog and the corresponding podcasts with anyone who you think might enjoy them or find them helpful.

Saving in a Season of Spending

                We are about to enter the time of the year where we spend the most amount of money on things we don’t need. Is that statement based in measurable fact? Maybe not, but discretionary income is going to be drawn from over the next few months in a way that is unique to the holidays. Forecasters project that consumers in this country will be spending over $940 billion dollars this holiday season1. That’s a large total. In fact, we are projected to see an increase of 6-8% in spending over last year’s totals. This does not necessarily mean that we are buying and selling that many more goods as you have to factor in the inflation that we have seen this year. Year over year we are still sitting at 7.7% inflation, which will contribute to the inflation of spending calculations2. If you are not sure how much shopping you want to do this year, and maybe you want to find other ways to put your money to use this season, this year could be a great year to scale back on spending and increase your saving. Here are some ideas on where to allocate those dollars.

Building up your Emergency Fund

                We often advocate for clients to have money saved away to cover 3-6 months of expenses. Why do we do this? Well, you never know when the source of your income is going to dry up. The economy is not in a position of strength currently because of the Fed’s fight against inflation. If we enter a recession that means many people could lose their jobs. Having an emergency fund covers you in such a situation so that you are not left scrambling for money while you look for your next career move. If you have some money going unused this holiday season, now may be the time to bolster the emergency savings while heading into the new year.

Opening/contributing to a 529 Plan

                Do you want to give your kids a gift that is much more valuable than any new gadget or toy? Maybe it might be a good idea to 529 Education savings plan. Sure, maybe they won’t be able to unwrap this under the Christmas tree, but they are going to be so thankful when they get to college and it comes time to pay. 529 Plans are a great way to invest money in the market and the money can then be used tax-free in the future for qualified education expenses. 529 plan contribution limits are limited by the annual gift tax exclusion which is $16,000 per year per donor. For more information on 529 plans, read this blog that we wrote on the subject: https://www.provisioretirement.com/blog/when-college-comes-knocking .

Opening/ contributing to a Roth IRA

Do you want a tax-free bucket of money in retirement? If you answered “no” to that question then maybe you should skip the rest of this section. If you answered “yes” then Roth IRA’s are the way to do that. Just like a Traditional IRA, Roth IRAs invest after-tax dollars into whatever investments you choose. The money invested also grows tax-deferred while in the IRA. For more information on the advantages of a Roth, click here: https://www.provisioretirement.com/blog/the-advantages-of-utilizing-a-roth-ira .

 

If you want to be a bit unconventional in your money allocation this season, hopefully these options give you some good ideas. That is the end of today’s blog, tune in next Tuesday for our 100th blog post! It will be something special.

 

1https://www.investors.com/news/holiday-shopping-2022-will-inflation-grinch-steal-christmas/#:~:text=Last%20week%2C%20the%20National%20Retail,totaled%20%24889.3%20billion%2C%20says%20NRF.

2https://www.bls.gov/cpi/

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

 

Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

 

Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

 

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.