Read These Important Tips Before Going on Your Black Friday Shopping Spree!

• Author: Michael Bordonada
• Posted: 2024-10-11

Every year, Americans flock to department stores across the country to get some of the year's best deals. Though many stores are doing so-called "early Black Fridays" this year and much more purchases are likely going to be made online than have traditionally been made in person, the principles remain the same.

Before you go on your 2020 Black Friday shopping Blitz, you need to know some important information to get the best deals and maintain your savings.

Avoid IRA Withdrawals

At this point, almost every news outlet has broadcast the fact that the IRS has allowed most people to do "penalty-free" non-qualified IRA withdrawals. This simply means that if you have an IRA, and you have lost income due to the COVID-19 pandemic, you can take money out of it for free.

There are other fine-print stipulations on these withdrawals, and there's been discussion of people taking advantage of this unique offer by withdrawing from their retirement accounts to buy things for Black Friday.

First, remember that your IRA is meant to be a lifeline. Traditionally, qualified withdrawals are once you're around retirement age or if you have significant unexpected expenses that you must pay off related to medical issues, student loans, and a few other categories. That TV that costs $2,000 might look great now, but you won't feel great a decade later when you need that money and just have an old TV to show for it!

Additionally, you lose out on all the tax benefits of IRAs. Remember, traditional IRAs allow you to offset your federal (and often state and local where applicable) income taxes until you take the money out. All of the money you've put in thus far is "pre-tax", so you will owe income tax on what you take out. Additionally, one of the main features of IRAs is that you can have tax-deferred growth. This means that you can retain significant capital gains on your IRAs without paying taxes on those gains! Over time, compounding usually leads to a huge increase averaging 5-8% every year, so if anything, you should be contributing to an IRA instead of buying those flashy electronics!

Don't Assume It's a Good Deal

You may have seen some "door buster deals" on various supermarket websites. They will often say that the item is something like 90% off its retail price. You should always verify that this is based on the actual price of the item in question. Unfortunately, many larger chains even have customized ISBNs for the same products smaller businesses sell just so that they can always claim they have a "sale", when in reality, you may actually just be paying what the item is actually worth. Research pays off in this case.

Use the Five Year/48 Hour Rule

Before making any purchases, there is a rule often recommended by financial analysts to ensure you save as much cash as possible. While there's no need to be stingy to the point of not buying anything recreational, purchases of this nature should be limited.

The first thing you should do is wait at least 48 hours before buying something after seeing it. Large businesses typically hire behavioral psychologists as consultants when they design their websites to make it almost impossible for you to not just hit that "buy now" button when you see something you like. The behavior can become almost addictive, and it can end up being quite costly.

Second, you should follow what many financial analysts refer to as the "five year rule". This means you should think about what this purchase will mean in five years. If it's for yourself, ask yourself if it is something you will actually use for around five years. Because many people fail to do this, and it's not a human instinct to do this analysis, many end up with a lot of "junk" in their houses. If it's a gift for someone else, ask yourself if the cost to you is worth the benefit to them. While it's usually better to give than to receive, it's always better to buy something cheaper that will retain sentimental value for your friend or relative.

Utilizing these two rules in conjunction will keep your money in your pocket and ensure that the "sales" you're patronizing are real sales!