personal finance

How to Keep Your Holiday Spending and End-Of-Year Finances in Check. Your Questions Answered

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In this unusual holiday season, many consumers have said they plan to spend less than they did last year due to the Covid-19 crisis.

Not all plan to be frugal.

Here are answers to some financial questions I received from CNBC viewers about holiday budgeting and keeping your finances straight going into the New Year. 

How do I keep from overspending during the holidays? With all the gloom and doom this year I feel like going all out! 

Some people may think shopping will lift their mood, but overspending can be a serious downer. Consider this: 

Give the gift of your time and talents. Volunteer at a food pantry, deliver groceries to neighbors in need or make care packages for friends and family. You don't have to necessarily buy a lot (or anything at all) to give a great gift. 

Make your wish list before going shopping online. You want to avoid filing your cart with too much stuff. Stick to your list, and look for a discount coupon code to use at that retailer too.  

Spend only what you can afford. In normal times, some financial advisors have suggested spending no more than 1% of your annual salary on holiday travel and gifts. But these are not normal times. You may want to go all out this year, but if it doesn't fit within your budget then don't buy it! 

I'll be using my credit cards for all my holiday shopping. What are your thoughts on best practices?  

Most people will be using credit cards to pay for holiday shopping, but still want to get the biggest bang for their bucks. A cash-back rewards card can be a great way to do that by giving you 1% to as much as 5% cash back on various purchases.

You can use that money to then help pay off your next credit card bill or pay for more gifts. There are a lot of cash back cards on the market, but look for one that has no annual fee. Some may offer an introductory 0% annual percentage rate for 12 months or more, which means you'll pay no interest for at least one year.

Just remember, when you use your credit card, spend only as much as you can pay off in full in the next billing cycle. The last thing you want to do is carry your holiday debt into spring. 

How much should we save up for the unknowns of the upcoming first quarter?  

Review your financial goals for the New Year and plan now for how much of your income you'll likely need for expenses as well as savings. Try the "60% Solution." Allocate no more than 60% of your gross income toward committed expenses (mortgage or rent, groceries, utilities, credit card and student loan debt, as well as all taxes).

Split up the rest of your income this way: 20% to long-term savings (including retirement savings) and 10% to short-term savings (that's your emergency fund). If you don't have much cash on hand, you may want to switch those percentages.

The last 10% is your "fun money" for those splurges. After covering your expenses and adding to your savings, spend what's left (but no more than 10%) on whatever you'd like that may help keep your spirits up! 

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CHECK OUT: Warren Buffett: Don't invest this way or you're 'certain' to get 'worse-than-average results' via Grow with Acorns+CNBC.

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.

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