How Much Should I Be Spending on Gifts?

By Brett Sifling

It’s that time of year again! The holiday season is upon us. It’s time to decorate the house, spend time with family and loved ones, and reflect on everything that happened this year. It’s also a time of giving. You probably have a lot of people or organizations that are important in your life that you want to give to. Whether it’s family and friends, the church, or charities, it is essential that you are smart about your holiday spending. Which brings me to a common question I get this time of year, “How much should I be spending on gifts?”

First thing is first, you need to get your finances in order. This is a great time to revisit or start a budget ahead of the new year. The number one tip I have for creating a budget is be honest with yourself and your spending. A budget does not help you much if you are unrealistic in calculating your own spending.

If you don’t know where to start, reach out! I’m more than happy to send you a budget analysis sheet to help bring some structure to the exercise. Working with a professional when developing a budget is always a great idea. We as advisors can also help keep you accountable and on track with your financial plan.

How much should I spend?

A good rule of thumb is to spend 1% or less of your yearly gross income on gifts. This means if you are making a $75,000 salary, try not to exceed $750 in annual gift spending. If you are a natural over-spender, it’s a good idea to aim for 75% of that number, or about $562.50 in my example. Financial advisors are not here to tell you to save all of your money. We are simply here to give you the best advice based on your financial situation, goals, and what is important to you. I know many people that gift much more each year for reasons that are important to them, such as giving 10% of their salary to their church.

I also wanted to leave you with an alternative gift giving idea. If your kids already have many toys, consider opening up a 529 College Savings Plan. 529 plans allow you to contribute to an account in which the investments will grow tax-deferred and can be withdrawn tax-free for qualified educational expenses. This means you can not only use it for student housing and tuition, but also a host of other college essentials like a laptop or computer software. If you have generous grandparents, they can gift money to this as well. Your child may get one less toy today, but they will thank you when they don’t have as much student debt as their peers.

No matter what you decide to spend or how you spend it, remember what is truly important this holiday season: spending time with those that you care about. Oh, and don’t forget to leave out milk and cookies for the big guy. Merry Christmas and Happy Holidays!

Brett Sifling is a Financial Advisor of Santa Monica, Calif-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately $800 million in assets under management as of 7/04/18. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Readers shouldn’t buy any investment without doing their own research to determine if the investments are suitable to their situation.