By Ryan Ovenden, Wealth Advisor
It’s that time of year again.
When the snow starts to fall, you can hear the sounds of Christmas carols and jingle bells. Truly, it’s such a joyous time of year.
The thought of maxing out your budget around the holidays — definitely not so jolly.
It can be easy for your credit cards to put you in the holiday spirit. But then before you know it, your gift budget is already spent before you can say, “Santa Claus”.
So how can you avoid it?
I’m so glad you asked.
Today, I’m going to take some time to explain the dangers of excessive holiday spending, and a few steps you can take to avoid overdoing it.
In 2019, the National Retail Federation survey predicted that most holiday shoppers planned to spend $1,048 on the holidays.
We trust those numbers have only gone up.
Additional spending, without the income to account for it, can add up fast. Additionally, this spending is most likely made on credit cards. Factor in the interest rate, take a few months to pay it off, and it very quickly becomes more than just one thousand bucks.
The first step to prevent spending from snowballing out of control is to:
KNOW WHAT YOU’RE SPENDING MONEY ON.
This is a great principle to apply to your personal budgeting, even outside of the holiday season, but it still rings true.
Knowledge is power to help us make wise financial decisions.
For every holiday-related purchase, track it. Whether it’s on a budgeting app, spreadsheet, or even pen and paper. We can’t measure what we don’t track. Before you begin holiday spending, it may help to break down what your holiday spending should be.
MAKE A SPECIAL BUDGET
Similar to knowing what you’re spending your money on, creating a specific holiday budget will allow you to get ahead of your spending. Knowing what your limits are and stating them ahead of time will help you stick to it.
Make a list of categories to know where your money is going this year:
- Charitable Donations
Be as specific as you can when creating a budget. For example, when deciding how much to spend on gifts, decide how many gifts and for who. This can enable you to decide the amount required before you spend it.
SAVE MONEY THROUGHOUT THE YEAR TO PREPARE
Instead of finding $1,048 in your budget in December, it can be a lot easier to save $80-$100 each month.
By setting aside a smaller amount each month, you’ll be able to save and spend soundly when the holiday arrives. Saving money throughout the year relieves you from the stress of making sure you have enough. No more scrambling for extra holiday cash.
After making your budget for the holiday, just divide the total by 10 to know exactly how much to put away each month in time for next season.
CONSIDER PAYING WITHOUT PLASTIC
Now, we don’t have a policy against using credit cards per say, but it’s worth considering that they add interest to your spending.
This can add to your total very quickly, and surreptitiously, spiraling very quickly.
When possible, pay for items with a debit card that pulls automatically from your checking account. Another option, if you have to use a credit card, is to set up automatic withdrawal, so that you can make the payment immediately and avoid accruing interest.
Another benefit of not using credit cards is that it eliminates risks of being hacked. It’s not uncommon for hackers to target databases of popular retailers such as Target, Home Depot, or other department stores, particularly around the holiday season.
CONSIDER THE EXTRAS
Like we mentioned above, making a specific budget for the holiday season is a great tool to avoid overspending, but in addition to those main categories, are some things that we forget to include in holiday spending.
Groceries for special meals, holiday travel and pet boarding, and higher utilities are all great examples of “extra” holiday expenses we may easily forget.
Remember to include these in your holiday spending, as they can still contribute to your budget. Not to mention, even when you make a gift list, we tend to forget at least one.
Be sure to build in extra margin for these additional expenses and you won’t get caught wondering if you have enough cash to cover Christmas this year.
Ryan is a non-registered associate of Cetera.