6 Must-Follow Holiday Budgeting Tips
The holidays are approaching quickly and with them comes fun, food, gifts for the family, and the need to figure out how to pay for it all.
The fact is, the average American can easily spend between $800 – $1000 on the holidays each year. Unfortunately, many people don’t save in advance and put it all on the credit card. This leaves them with a savings shortfall, or worse, a large credit card balance that they’ll be paying off well into the following year.
The good news is that you can avoid these traps with a little planning and by applying these six holiday budgeting tips.
1. Set a Budget
The biggest mistake that people make around the holidays is that they create a gift list and then try to figure out how to pay for everything. Instead, you should determine how much you can spend, and then create your holiday budget from there.
Experts agree that you should spend no more than 1.5 percent of your annual salary (roughly equivalent to one week’s pay) on the holidays. That doesn’t just include gifts, that also needs to include travel and entertaining expenses. Also, if you’re getting gifts that require extras like batteries or accessories, make sure you factor those into your total as well.
2. Work Backward
Once you know the amount that you’re ready to spend, start prioritizing how you want to spend it. Want to take that beach vacation? You may need to cut back on gifts.
Kids have their hearts set on that new gaming system? Make sure that they (and you) understand that it may eat up a significant portion of your gift budget.
By sticking to a fixed amount, you’re more likely to avoid the temptation to spend that little bit extra each time you go holiday shopping.
3. Make a List
Before you set foot in a store, put together a list of everyone you need to buy gifts for. Then assign each person points on how much you want to spend on them. Don’t settle on a dollar amount, just give them one, two or three points. The more important people in your life such as a spouse or your kids would get three points; close friends might get two, acquaintances one. Add up the total points and then divide the total amount you plan to spend on gifts by that number. This gives you an average dollar value per point. Then multiply each person’s point value by that number.
If you feel that you have too many ones, you may want to remove some people from the list, or plan to send a card instead of a gift. Want more money for the family? You may need to relegate some of your twos to the one list.
The idea behind this is to get you used to the idea of sticking to a set gift budget, and also prioritizing how you can best spend your holiday dollars.
4. Check it Twice
The last thing you want to do during the holidays is set foot in a store without knowing exactly what you plan to buy. Stores around the holidays are full of visual stimuli, special offers and every incentive to buy more than you need. Ideally, the less time you spend in the store, the more you’ll save.
If you can, comparison shop online before you set foot in the store. You may find everything you want at a price you can afford.
If you think you’re going to do your shopping online, consider signing up for Amazon Prime or a similar service. You’ll pay a monthly fee, but the free shipping can easily save you hundreds of dollars over the holidays.
Even if you prefer to shop at a physical store, keep a snapshot of the lowest price you can find on your phone. Most major retailers will price match at the register, as long as you can demonstrate that the item was listed for less somewhere else.
5. The Thought Does Count
If there are people whom you’d like to give a gift to, but can’t fit into your holiday budget, consider something homemade like fresh baked cookies or something else made by hand.
Another thing that your friends and family always need more of is time. Offer to babysit, help them with cooking or computer issues. Whatever your strengths are, share them with the ones you love. It saves you money, and you’ll be giving a gift that’s truly priceless.
6. Avoid Credit Cards
Too many holiday shoppers say, “I’ll just put in on the credit card and pay it back later.” Later comes around and they find that they’re still paying off the credit card, and accumulating interest all the while. Let’s say that you spend that $800 on a credit card with an 18 percent annual percentage rate (APR), and you pay the typical minimum payment. To pay off the credit card will take 45 months, and you’ll pay about $300 in interest. Instead, if you have to use a credit card, make sure that you have a payoff plan in place that allows you to pay off your credit card in three to six months. Otherwise, the holiday gift that you forgot about after New Years could be costing you interest for a long time to come.
Looking for more tips to help you save for the holidays? Come talk with us today! We can help you with savings accounts and other ideas on how to have a joyous season, without paying for it next year.