As the holidays approach, you are probably spending more time thinking about how much you are going to spend on your loved ones than on the holidays themselves. Your average American incurs $1,000 of new credit card debt during the holiday season, which they then spend the following year trying to pay down. Instead of digging yourself into a new spending hole, follow these smart money management tips this holiday season.
- Work holiday spending into your budget. Setting a budget and reviewing it regularly is the first step to developing better spending and savings habits. Your budget should consist of all your fixed monthly bills as well as average monthly amounts for your variable spending. Holiday spending falls into this second category. Because holiday spending is variable, it’s easy to overspend. Expectations for holiday presents seem to grow every year and you may be tempted to top last year’s present exchange, ultimately swiping your card more and more. Check your statements for what you spent on gifts, travel, decorations, etc, and use this as a starting point for your holiday spending. If you are shocked by the number, then it is probably too high. Cut it down to what you feel is reasonable and make this your max holiday spending amount.
- Set a spending limit for each person on your list. As you come up with gift ideas for the people on your list, write down the amount you’re going to spend on the gift. All these items together should not exceed your previously determined max holiday spending amount. Follow the sales and research lesser-known alternatives that might work just as well but cost less. Stand firm on your budget and don’t be tempted to add extras.
- Spend only what you have in your account. If you’ve set aside some cash for holiday shopping, stick to your allotted funds. If you are tempted to overspend, use your debit card and withdraw directly from your checking account so you don’t spend more than you have. Only use your credit card if you know you will be able to pay the entire balance when the bill comes due in January.
- Start your holiday savings account for next year. Knowing how much you want to spend during the holidays, you can set a savings goal based on this amount for next year. This should be separate from your emergency fund which, as the name indicates, should only be used for emergencies. Setting aside money each month for holiday spending will significantly reduce your stress when the holiday season rolls around again.
More importantly, enjoy the time you spend with your friends and family and don’t worry so much about the stuff you can buy. Spending the holidays with the ones you love is infinitely more valuable.