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The best way to budget for the holidays is to treat them like any other financial situation – plan ahead, prepare a budget, and save money ahead of time.

First Things First

Know your budget, so you can decide the right amount to spend during the holidays.

Create a budget for gifting, listing who you’ll gift to and how much you’ll spend on each.

Don’t Let Holiday Spending Get You Down

The holidays are a joyous time, with the comfort of home, the warmth of your favorite people, and the celebration of the gift giving tradition.  However, without careful planning and spending, you can wind up leaking money long after the the holidays are over.

The trick to avoiding holiday spending problems is to plan ahead and save for the expenses ahead of time.  The best plan is to save for the holidays all year round.

Step 1:  Saving Money

Why is it important to save up for the holidays?  Because the alternative is to whip out your credit card.  Paying interest rates on your gift purchases, even if it’s a low interest rate, increases your holiday spending and cancels out many of the discounts you shopped for.

Starting in January, set aside a special holiday account where you tuck away your holiday funds.  Even if you only save $10 a week, that’s $500 of holiday money you won’t pay credit card interest rates on!  Your bank might have special savings accounts for the holidays.  Use direct deposit if possible for this account – you’ll never miss the money if you never see it.

Step 2:  Budget the Holidays

Think about the times you’ve gone out with friends during the holidays; the gifts; the cards; the travel expenses.  Add up all the different holiday expenses and organize them – this sum is your holiday savings goal.  If you’re the type who saves receipts, then looking at a previous year’s holiday expenses will help you make a complete budget for next year.

The best situation is to spend only what you can save in advance.  If the difference between what you can save, and what you will spend, is too big, then it’s time to figure out how you can save more money or what holiday expenses you can do without.  Extravagant lighting displays and frequently going out to eat, for example – can these things be reduced?

Step 3:  Spend Less During the Holidays

Start buying your gifts early.  This is the single-best way to reduce your holiday spending – don’t pay holiday prices.  Start during the after-holiday sales, when stores are trying to shed excess stock.  You can also pick up other holiday items like cards and wrapping paper, at discount prices in January.

You can do this sort of thing all year round.  Do you buy gifts meant for summertime?  If so, buy them in the fall.  Find discounts and take advantage of them.  If you’ve been budgeting your holidays, and saving up for them, then there’s no reason why you need to wait until December to spend wisely for the holidays.

Since you’re comparison shopping and hunting for deals, don’t forget to check for online discounts.  Many online stores are less expensive than their brick and mortar counterparts.  Of course, you should make sure you can pay the full amount off of your credit card before you check out.  The key point is to comparison shop for the best prices.

Step 4:  Consider Alternatives to Gifting

Don’t forget that spending money at a retailer is not the truly important part of the holidays!  Spending time with your loved ones is often more desirable to them, than spending money on them.  Cook for them, take a day-long vacation with them, do them favors – these are all excellent “gift” ideas that will be appreciated, and will save you from costly debt.

Another idea is to play Secret Santa with your friends and family.  Have everyone pick a name from a hat so that nobody is left out, but each person only needs to buy gifts for one person.

Are there people on your gifting list who you won’t see until after the holidays?  In that case, maybe you should shop at the last minute – meaning, during clearance sales.  Smart shoppers everywhere have been taking advantage of after-holiday sales for years.

All these options and more, will reduce your financial strain during the holidays and, most importantly, will keep the credit card safely in your wallet, where it belongs.  If and when you must charge holiday purchases, make sure you know which card carries the lowest interest rate.  Pay down holiday purchases as soon as possible, so your holiday budget doesn’t cut into your summer vacation!

In Conclusion

Holiday spending is a year-round affair whether you’re paying interest after the holidays, or saving for them in advance.  Saving in advance, and planning your holiday spending, saves you money in the long term.  Check for any holiday saving accounts at your financial institution, and direct deposit into that account if you can.  Know what you’ll spend in advance, and figure out how you can reduce that to keep it in-line with your savings.  Shop year-round to take advantage of the best deals.  Keep that credit card hidden away, and if you must use credit, use the account with the lowest interest rate.

Krebs Financial of Miami, Florida is a full-service mortgage, credit repair and loss mitigation company with expertise in short sales, loan modifications, reinstatements and more. www.krebsfinancial.com
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