5 Ways Saving Money This Holiday Can Pay Off Big Next Year
HOW HOLIDAY SAVINGS CAN PAY BIG NEXT YEAR
Did you know the average American spends somewhere in the ballpark of $1,000-$1,500 during the holiday season every year*?
Between gifts and parties and other activities, the holidays seem to be taking a pretty big hit on our bank accounts and, although I figured this number would be high, I was shocked to read this, especially when you consider families because then things really start to add up.
I get it - the holiday season is fun. It feels good to get that dopamine rush of buying gifts and fancy cocktails and hosting parties.
But you know what else feels good?
Considering what that money could do for you in the future. And not even the distant future… I’m talking about in the next 12 months.
And that’s what we’re talking about today… 5 ways saving money this holiday season can pay off big next year.
1) MAKE 400X+ MORE USING A HYSA
One of the easiest things you can do to grow your money is by moving the money you keep in your bank savings account into a High Yield Savings Account (HYSA) instead.
Generally, when I talk about HYSAs I’m comparing the interest rate of a HYSA, which at the time of writing is upwards of 4%*, to that of a traditional bank savings account which is less than 1%* (as in a fraction of a percent).
Now, when you do the math on that you’re already getting nearly 7X more money simply by moving the money you have in your bank’s savings account into a HYSA instead.
But, today, we’re comparing different options which are Option 1: spending that money on the holiday season where you’re literally getting 0% return, financially speaking, and Option 2: where you’re putting that money into a HYSA and getting upwards of a 4% return.
And that means, by saving this holiday season and putting that money into a HYSA instead, you’ll be making over 400X* more money. That’s a huge opportunity for next year!
2) AVOID LOSING $12,700 IN OPPORTUNITY COST
If you follow the roadmap I generally talk about, then you know I don’t think anyone should invest until they have an Emergency Fund saved up.
So, assuming you follow this, the longer it takes you to save up that Emergency Fund, the longer it will take you to get invested.
That means, instead of spending as much money on the holiday season, you could put that money toward your Emergency Fund so that you can start investing sooner.
And here’s why that matters when you put numbers to it:
Now, the numbers here are based on some assumptions like average income and expenses for Americans* and you can find links to all of that in the show notes, but based on those averages, every month you go without investing, you’re potentially losing around $1,000* in opportunity cost, which means that if you had finished your Emergency Fund and got your money invested, you could have seen nearly $12,700* in your investment account next year.
So, with this, you can see the huge opportunity of how choosing to put your money into your Emergency Fund and/or investments can pay off big next year instead of putting all your money or as much money into the holiday season.
3) GENERATE $150 EXTRA (AND $1K IN 5 YEARS)
Let’s say you’ve already got an Emergency Fund saved up and you’re ready to invest… what could that look like if you chose to put $1,500 into the stock market next year instead of spending it this holiday season?
Based on the historical stock market return of 10%*, if you put $1,500 into the stock market on January 1st and invested nothing else for the rest of the year, and if your investments performed on par with the market average of 10%, that means at the end of next year you would have generated an extra $150* - with minimal effort on your part.
Considering you had to do very little work to make this extra money, I already think that’s pretty cool, but if you left that money alone, and the market continued performing at 10%, in 5 years that original $1,500 could turn into about $2,500*, which means you’d have made about $1000*.
And if you’ve listened to Episode 27 about compound interest, then you understand that the longer you leave that money alone with all other variables remaining the same, every year thereafter you’d generate higher and higher amounts of money.
So, again, this is just another opportunity to consider this holiday season.
4) SAVE $330 IN TAXES WITH AN HSA
The first thing you’ll want to do is see if your employer or your spouse’s employer offers a Health Savings Account (HSA). This is an account where you put money that is to be used only on approved medical expenses like doctor’s visits, medicine, and medical supplies.
But, what’s cool about an HSA is the tax benefits.
According to investopedia.com, “an HSA has a unique triple tax benefit. Your contributions reduce your taxable income, any investment growth within the account is tax-free, and qualified withdrawals (that is, ones used for medical expenses) are tax-free.”
That means if you chose to put $1,500 into an HSA instead of spending it on the holidays, you wouldn’t pay taxes on that money, which, based on the averages we’ve been using, would result in $330* of tax savings next year.
Maybe that doesn’t sound like much at face value, but that’s $330 that you can put into investments and allow to grow with compound interest.
Every bit counts because it adds up and, as it adds up, compound interest helps the money grow faster and faster.
5) INVEST IN KNOWLEDGE THAT PAYS FOR LIFE
Although you could opt to invest in yourself by taking yourself on vacation or maybe taking time off between jobs - and I do think those are extremely worthy causes for your mental health and to prioritize rest - what I’m talking about here is investing some money into taking a course to grow your knowledge.
Whether you want to take a course on finances to continue getting better at money or you want to invest in a course on healthy cooking to ensure you know how to keep yourself and your family well - there are so many opportunities nowadays to access precious information remotely in the form of a course.
Sure, there’s YouTube, but signing up and paying for a course that walks you through a specific subject in a very structured way that has a beginning and an end and a very specific promised outcome is incredibly valuable (speaking from experience!).
The fact that we live in a time where you can access people’s knowledge from anywhere in the world is something I believe we should all be taking advantage of and prioritizing in our lives.
This is a HUGE opportunity, and saving money this holiday season might put you in the financial position to take advantage of one of those opportunities and set you up to truly make meaningful and lasting changes in your life and the lives of those you love.
I say it often and I’ll say it again: investing in YOURSELF is more important than investing in any other asset and I continue to stand by that today.
So, in case it’s something you haven’t considered, I’m here to remind you that if you save some money this holiday season, you could use that money to make some of those investments in yourself to create lasting change that could serve you well for the rest of your life.
THE BIG PICTURE
Whether it’s for the holidays or on any other normal day, when you spend money, it’s worth remembering what you’re giving up by choosing to buy certain things instead of others.
But make sure it’s a balance! Don’t over-rotate to save so much that you make yourself and others miserable; that’s not the goal.
Just be cognizant of where you might be overspending and remember the great opportunities you could leverage instead that can pay you big next year.
In summary, the 5 opportunities we discussed you can take advantage of by choosing to save some money this holiday season are:
1) Make 400x more by putting that money into a HYSA
2) Avoid losing $12,700 in opportunity cost from delaying investing
3) Generate $150 extra money next year (and $1,000 in 5 years)
4) Save $330 by putting that money into a HSA
5) Use that money to invest in knowledge that will pay you for a lifetime
NEXT STEPS
If saving money is on your list for next year, or better yet, if you feel inspired to start now ahead of the holiday season, grab my free Money Saving Cheat Sheet: 30 Simple Life Hacks that Actually Help You Progress Toward Your Savings Goal.
Inside, you’ll find fun activity ideas, as well as some ideas you could use instead of expensive holiday gifts.
And, if you’re ready to save big, be sure to read to the end for 2 bonus ideas for serious savers.
I hope you enjoyed this episode and feel inspired to keep your eyes - and your wallet - peeled for opportunities to invest to grow your money and/or your knowledge.
The most important thing is to remember that you’ve got options - and you, and only you, get to decide which are right for you.
GET YOUR FREE RESOURCE!
Sources:
*HYSA 400X Metric: Can’t divide 4% by 0% so this is based on 4% divided by .01%
*Opportunity Cost from Not Investing: as calculated with this Compound Interest Calculator based on not investing the $969 that’s left after the Average Monthly Expenses for Americans are taken from ($3,693) from the Average Income for Americans ($4662) for 1 year with a 10% return based on the Historical Return of Stock Market
*HSA Tax Savings: Based on Average Income for Americans, that would put us in the 22% tax bracket and 22% of $1,500 is $330
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