As that famous Christmas carol says, “Tis the season to be jolly.” Unfortunately, it can also be the season to overspend. If you’re not careful getting into the holiday spirit can get you into a lot of debt. You want to do what’s right by your family members and friends but if you don’t shop carefully doing the “right thing” can get you into serious trouble. The National Retail Federation says we will spend an average of $805 on our holiday shopping. And do you know who are the biggest over spenders? It’s parents. Again, according to the National Retail Federation parents say they will spend more than they should on their children this holiday season with more than 50% using their credit cards to cover their additional spending. Another 16% said they would be dipping either into their retirement accounts or their emergency funds.
Fortunately, there are ways to keep from overspending and here are some tips that can help.
It begins with a budget
The first important step to manage debt is to control your spending by making a budget. Make a list of your recurring expenses and subtract them from your total income to see how much disposable income you will have that you could reasonably spend on gifts. Next, write out a list of those people you want to gift and assign a dollar amount to each of them. Add this up and compare the total to what you have in your checking account and the amount of disposable income you will have in the next month. This should tell you how much you could afford to spend without going into debt.
Next, start watching for store circulars and online deals that could help you stay under budget. Keep a running total of the gifts you’ve purchased so you will know how you stand versus your budget. If you shop carefully you may even be able to come in under budget. What’s important is that this will keep you from making spur of the moment decisions especially if you tend to be a natural over spender.
Make a shopping plan
Whether you decide to fight the crowds on Black Friday or do your shopping from the comfort of your couch it’s important to have a spending plan. Focus on getting the items that are on your list at the best possible price and buy nothing more. Those shifty retailers are great at getting you to buy more than you had planned by tempting you with what looks like really amazing deals. Keep in mind that when you get home and have some time to cool off you may decide that those deals weren’t really so amazing after all and that you now have a bad case of buyer’s remorse. Shopping experts say that the very worst thing you can do is to go shopping on Black Friday without a list but with a pocket full of credit cards. Do this and you are doomed to overspend so you won’t manage debt.
Try for lower costing alternatives
If you add up your gift list, compare it to the amount you’ve budgeted and find you don’t have enough money to buy all the gifts you had planned to buy, there are alternatives. For example, if you have a large family you could suggest a secret Santa where each of you gives just one really nice gift to one other person. Or you could suggest a cost-controlled gift swap where no one spends more than, say, $10 on her or his gifts. If you’re good at carpentry, knitting, crocheting or some other craft you could make all or most of your gifts. DIY gifts not only cost less than those you buy but people tend to appreciate them much more because you put so much of yourself into them.
One of the best gifts you can give your children
One of the greatest gifts you can give your children is financial literacy, which means teaching by example. Help them understand the “why” of your budgeting. One senior financial planner at T. Rowe Price has pointed out that, “In the midst of the holiday excitement, it’s easy to lose sight of all the goals were trying to achieve. How much we spend on the holidays influences how much we have for our summer vacation, for a kids’ education, for our own retirement.” Talk with your kids about priorities and trade-offs like how the money you save by budgeting this holiday season will help fund a one-week vacation at the shore, their summer camp or a ski trip.
Plan for next year
While you might not want to think about next year’s holiday shopping you can take the trauma out of it by putting a little money aside each month in an account dedicated to next year’s shopping. When the holidays roll around next year you’ll have enough money that you’ll be able to buy your gifts without spending a month feeling totally stressed out.