If you are like the average American, you’ll spend somewhere around $900 this holiday season on gifts. If you are like 1/3 of the people that took a Gallup Poll, you’ll spend over $1,000. Although all of this gift-giving can bring some joy and happiness to those you love, it can result in big problems down the road if you are living beyond your budget. At this time of year, we’ve provided some simple helpful tips that will help in keeping your holiday spending under control
According to research, many of those feeling the holiday spirit will go into debt to finance their holiday gift-giving. Of those, approximately 30% will have the bills paid off within three months. 25% will take up to a year to get them paid off. Whether or not you’re carrying your holiday balance for three months or for twelve months, either scenario will result in some fairly substantial finance charges when all is said and done.
For example, if you’re one of the few credit card holders with a lower interest rate, of say 6.9%, then you will pay $16 in interest over a three month period if you make $900 worth of holiday purchases. If you spread that out over a year, you will pay $63 in interest. If you have an interest rate of 24.9%, on the other hand, you will pay $56 in three months or $226 in a year.
To avoid going into holiday debt and paying huge finance charges, there are a few simples steps you should take. First of all, make sure to set up a budget. The thought of creating a budget might make you grumble, but you really need to plan out your holiday spending before you hit the stores. Besides, creating a holiday budget doesn’t have to be a terrible experience. It can be a very worthwhile exercise.
For starters, you will first need to make a list of who you plan to buy for. Determine how much money you will spend on each person on your list. Above all, when you do your holiday shopping, be certain to stick to your plan and to your budget. Do not deviate.
Remember, other expenses, such as shipping and taxes, will also come into play. These expenses can really add up and blow your budget if you don’t consider them upfront. You also need to be certain to budget for expenses such as wrapping paper, holiday cards, and postage.
After you’ve determined how much you’d like to spend for the holidays, you need to make sure your income can cover the amount. It is better to start saving ahead of time so you don’t have to use your credit cards to get you through the holidays. If you do have to charge your holiday expenses, however, work out a plan that will allow you to get the expenses paid off in three months or less rather. Do this by determining how much money you have left over each month once your routine bills, such as your house payment and utilities, are paid. Make sure to allocate that amount each and every month to paying down the balance. If you’re spending $900 on your holiday shopping, you’ll need to set aside a little over $300 each month (to cover the finance charges that you’ll incur) in order to get it paid off in a three month time period.
Sounds simple enough, right?
If you find that you are still stretching yourself too thin with the budget you’ve developed, it’s time to start looking for ways to cut expenses. You might simply drop the budgeted amount for each person on your list by a certain amount, say $5. You might also look into pairing up with family members to go in on a gift together. Another option is to forgo sending traditional holiday cards through the mail and send digital e-cards instead. You’ll be amazed by how much you’ll save on cards and postage.
Finally, start shopping early. Waiting until the last minute is the fastest way to blow your budget. If you wait until the last minute, you’ll have less time to comparison shop to find deals or discounts and you might be less disciplined about your budget. Shopping early will also save you money if you need to ship your gift items because you can pay for standard shipping rather than having to pay for expensive express delivery.
It’s easy to get swept up by the holiday spirit and, before you know it, you are stuck debt, wondering how it happened. Do yourself a favor and start budgeting early – making sure to stick with it – so your holidays can be pleasant long after they’ve ended for the year.