How much can you realistically afford to spend on holiday gifts without going into debt at the start of the New Year? Keep in mind that your debt may linger long after the gifts have been given, and that holiday gifting should be meaningful rather than extravagant.
Utilize the rewarding process of budgeting to take control of your financial life this holiday season, as well as to properly align spending to your values and priorities. Refer to the complimentary FPA resource, " Budgeting: Managing Your Money with a Spending Plan ," for formats and insights on creating a viable budget.
Apply and practice the following strategies to inhibit overspending and to develop robust saving habits:
- Devise a total budget, a plan to figure out the maximum amount you wish to spend this holiday season. To anchor your shopping experience, you should concurrently compile a complete list of all those you expect to purchase gifts for and set expenditure limits for each person on your list. Ensure you allow a cushion for unexpected items or price fluctuations. Most importantly, avoid the social comparison inherent in holiday shopping.
- As a substantial percentage of credit card debt is incurred around the holidays, you can prudently commit to carry cash only and leave credit cards at home to avert impulse spending. Be wary that those holiday items which appeared to be bargains can end up costing more than you thought, due to interest on outstanding credit card balances months later. Alternatively, you may buy gift cards, which enable you to spend exactly what you budgeted.
- What are some fulfilling and cost-effective holiday gifting ideas that hold special significance to you and can be enjoyed by others? Consider making a positive impact by volunteering your talents to assist local charities and organizations in need of your services (i.e. Susan G. Komen Breast Cancer, Habitat for Humanity). Donate old or new belongings, such as eyeglasses and house furniture, to generously help the underserved (i.e. Lighthouse for the Blind, The Salvation Army). Further, you and your close ones can connect in a meaningful way this holiday season by organizing a party for the benefit of a shared cause or your community.
- Gift making can also be a gratifying and engaging way to save this holiday season. Give your family members a personal and memorable experience, such as a weekend retreat at a vacation destination. Get together with your loved ones to collaborate on making a family photograph album or cookbook. In addition, you can request your relatives to contribute to a joint gift, like a college fund. Pledge your future time or efforts (i.e. babysitting, tutoring) via written certificate and hold your recipient to redeeming these services.
- While you are in the holiday budgeting mode, it is never too early to start saving now for what you desire to spend next year and plan beyond. Orient yourself with the methodology in YouNeedABudget.com to effectively take your cash, checking, and saving accounts (less any credit cards that you pay off in full) and assign specific purposed to that money. Compartmentalize fixed amounts each month for large known and unexpected expenses, such as insurance premiums, anniversaries, future holidays, and home repairs. Without spending income from your current month's paychecks, you can facilitate a transition to this approach and automate monthly bill expenditures by living on last month's paychecks. It is essential to openly communicate, negotiate, and agree on allocated monetary needs and wants during a monthly family budget meeting.
Enlist the guidance of a qualified CERTIFIED FINANCIAL PLANNER TM professional from the Financial Planning Association ® to analyze your cash flow and to prompt changes that will help you achieve holiday spending goals. Run retirement estimates and forecast the cost of your child's college education before shopping.
Ultimately, you can resist the temptation to splurge and successfully manage your finances by sticking to your current budget and long-term plan.
FPA member Elaine King , CFP ® , CDFATM, is Chairman of FPA of Miami-Dade and Author of Family & Money Matters, La Familia y El Dinero Hecho Facil. FPA member Philip Herzberg, CFP ® , AEP ® , MSF, is President-Elect of FPA of Miami-Dade and Director of Media Relations & Public Awareness for FPA of Florida. They serve on the Estate Planning Council of Greater Miami Board of Directors .