With the holiday season a few months away, it’s a good time to ask yourself: do you overspend during the holidays?
If you know that you consistently overspend, start your planning now. By increasing your savings and thinking carefully about the gifts you give this year, you can avoid holiday debt and start the upcoming year with a clean slate.
Use a Christmas or Holiday Club Account. Some financial institutions offer a savings account intended specifically for holiday savings. These accounts allow you to save throughout the year and earn interest, rather than paying interest on your credit cards after the holidays. These accounts also give you a way to set holiday-specific savings apart from the rest of your money, so that you aren’t tempted to use the funds for other purposes throughout the year.
Predict how much you will spend for the holidays. To figure out how much you need to save in the next few months, it helps to know what you will spend this December.
There are a few ways you can go about this. You can draw up a gift-giving list now, and estimate funds you intend to use for holiday events with family and friends. Alternately, you can set a ballpark figure as your maximum amount to spend for the holidays, and commit to spending less than that amount. For a realistic view of your holiday spending, take a look at last December’s statements and total your holiday-related expenses.
Figure out what you can save now. How much room do you have in your budget? Will you need to cut down on your typical monthly spending in order to save? Can you divert some savings from other goals to fund your holiday expenses?
By looking at your budget now, you can spread holiday savings over several months, and make smaller cuts to each month. This is much more sustainable than trying to make large, unrealistic budget cuts in November and December.
Arrange for Automatic Transfers into your holiday account. If you have to cut your usual discretionary spending to save for the holidays, it can help you to remove those funds from your bank account as quickly as possible. Schedule an automatic transfer a few days after your paycheck or other income settles in your account. You won’t be tempted to spend what is not there.
Buy your gifts early. Another way to spread out the cost of the holiday season over several months is to buy a few gifts each month in the time leading up to the holidays. This also gives you time to search for good deals. If you’re pressed for time while searching for a gift in December, you may end up spending more than you originally planned.
Talk to family and friends about holiday spending. If you have looked at the math and realized that you won’t have as much available as you would like for holiday expenses, it can help if you talk to family and friends early. They may be in the same boat, and together you can set limits on the amounts you spend for gifts this year. You can also come up with less expensive, creative ways to enjoy the holidays together.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years experience in retail banking and with financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at firstname.lastname@example.org.