The thought of establishing a Christmas budget may make you feel a bit like Scrooge but especially in today’s turbulent economy, spending within your means will spare you any ‘bah humbugs’ once the new year rolls around.
“It’s important to think about the real meaning of Christmas,” says Tracy Watson of Money Matters in Calgary, Alta., a non-profit credit counselling organization. “You don’t have to be Santa to everybody. The holidays should be about enjoying time with friends and family – not what you spend.”
Begin by determining how much you can afford. Best-case scenario, you’ve been tucking aside money for months, says Watson. (If you plan on spending $1,000 and start saving in November, you have to save $500 a month but if you had started saving in January, you’d only have to save $83 a month. Something to consider for next year.)
Make a list of all your expenses – gifts, decorations, food, entertainment and travel – and allocate the appropriate amount for each category. If things don’t add up, get creative, Watson advises. Some suggestions: Make gift tags from the Christmas cards you received last year. E-mail instead of snail mailing Christmas cards. Suggest drawing names instead of buying a gift for everyone in your family.
When budgeting for gifts, don’t overlook giving the gift of time. Would grandma like her driveway shovelled this winter? Would your sister appreciate babysitting services? Consider a coupon book for things like a batch of homemade cookies and a drive to the movies.
“Those are ways to give a very nice gift and stay within your budget,” says Watson.
Creating a list of what you want to purchase will help you avoid impulse buying. Avoid miscellaneous purchases, which can add up quickly. “Once you’ve finished shopping, stay out of the malls and resist temptation,” says Watson.
How you pay for your purchases – cash, debit card or credit card – depends a lot on your personality. “There are pros and cons to each,” says Watson. “A lot of people like the cash method because it’s concrete – they see their money and know when it’s gone.”
Designate an envelope for each of the categories you established in your budget and resist the all-too-common temptation to trade money from one envelope to another.
“If you dip into the food envelope to go to a party and then put a dinner on your credit card, you’ve basically taken out a loan for your meal,” Watson explains. “This method requires discipline.”
Think plastic is fantastic? Credit cards can be for many people because they’re a tool for managing money – but only if you pay them off right away and avoid hefty interest rates. As an added bonus, you may earn loyalty points that can be cashed in for any of a number of rewards, such as gift certificates to shopping centres, restaurants, movie theatres, and even tech and other products – which in turn can be given as gifts.
Debit cards are not as controlled as cash and it’s easy to overspend if you have overdraft protection, which also carries high interest. Make sure you know what’s in your account and be careful to spend within the amount you’ve allotted to each category.
With both debit and credit cards, you’ll want to keep track of purchases along the way so there are no surprises later.
The holidays may be a stressful time but try to keep a reign on discretionary spending – such as grabbing a meal en route to the shopping centre. Brown bag it instead of eating out and take public transit instead of a taxi, for example.
Finally, if you’re having financial trouble, consider contacting a credit counselling service before your debt starts to spiral out of control.