If you’re like us and have a lot of people to buy for and only a modest amount of money for gift giving, you need to start working out (on your finances) to get financially fit. And now is not too early to get started. Black Friday is coming up, followed by Cyber Monday. So if you want to avoid a holiday hangover today is definitely a good time to start preparing for the 28 days of holiday shopping madness.
Develop a budget
The first step in keeping your holiday spending under control is to make a budget. You should have four categories – one for gift giving, one for travel (if appropriate), one for food and one for entertainment expenses. Many people end up in trouble because while they create a budget for their gift giving, they tend to forget about food and especially entertainment expenses. Make sure you also include miscellaneous expenses like babysitter fees, gasoline and eating out more frequently.
Make a list
Next, make a list of everyone you plan to gift, including loved ones, children, teachers, friends, your hair stylist, the guy who delivers your morning paper and so on. Then set a realistic spending limit for each person on your list along with some idea of what you will give that person.
Don’t feel pressured
When you’re making that list, don’t feel pressured to give to give a gift to everyone. If your finances are on the tight side, you might give some people a hand-written note expressing your appreciation for their help. A note or another hand made item (think home-baked cookies) can mean a lot more than some cheap knickknack you buy at your club warehouse or dollar store.
Keep on keeping on
Keep working your way through your budget and make sure you set aside some money for unexpected expenses. For example, you might receive a gift from someone who wasn’t on your list and you need to have some extra money to cover this. Did you save your receipts or credit card statements from last year’s holiday shopping? These could help you develop a realistic budget for this year’s gift giving, entertainment and food expenditures.
Think how you will pay for everything
You will definitely need to think about how you will pay for your holiday expenses. It’s always better to pay cash than to use a credit card. When you use cash you will know when you’re holiday spending is over, which is when you don’t have any left. This is a great way to keep from overspending. In comparison, it’s easy to go over budget when using a credit card. The problem is that paying with a credit card doesn’t feel the same as when you pay with cash. It’s just somehow easier to pull out a credit card then to take cash out of your wallet. If you do pay with a credit card and fail to keep careful track of your charges, you could be in for a very nasty surprise when January rolls around and your credit card statement arrives. You could use a credit card to pay for some of your expenses so long as you don’t spend more than you can pay off when that statement shows up. In fact, if you know your account’s closing date, you could get nearly 50 days of credit free just by not charging anything until the day after it closes.
Use a layaway plan
Many stores now offer layaway plans. One of these plans could help you score a big savings when you don’t have the cash in hand to pay for an item. You could take advantage of that great bargain but then spread the payments out over the next month. If you decide to do this, make sure you understand the store’s policies and keep careful track of all your payments.
Don’t make the mistake of going holiday shopping without a plan. Carefully review store ads and have a list of exactly where you will go and what you will buy. It’s easy to know what to buy these days as virtually every store posts its ads online well in advance of its actual sales. As an example of this, we get notices almost every day of deals in the form of emails from Amazon, Best Buy and Staple’s.
In comparison if you just go to a store and start wandering around looking for gift ideas, you could easily end up making impulse purchases or items that were not in your original budget. If you need to “window shop” do it at home using online catalogs or store ads so that you’ll know exactly what you’re going to buy when you walk into a store.
If you have a really tight budget, consider making some of your gifts. Many people would be happier to get a home made gift than something cheap you bought at a discount store. Depending on your skills and abilities, you might be able to create a personalized necklace or bracelet, paint a portrait of the person or hand-carve a miniature figurine. You say you don’t have the skills to do this? Then maybe you could make a photo book or a personalized T-shirt or make something like cookies or home made candy.
Holiday sales can be very tempting especially when you walk into a store and see some cool item for 70% off. But resist the temptation. If the item isn’t on your shopping list, just don’t buy it. Make sure you stick with your original budget at all times.
Resist the perks
You’re probably carrying at least one credit card that includes rewards in the form of points or cash back. If so, you’ve probably already received notification of “double” or even “4x points” on certain things. While it can be tempting to whip out that card when dining out, buying stuff on Amazon or purchasing groceries in order to earn those juicy points, don’t let this bust your budget. We have one credit card with cash back but when you do the math, we get one cent for every dollar we charge. This means that to get $100 cash back we would have to spend $1000. Remember that the bill for that spending will come due– in the form of your next month’s credit card statement. And that no deal is a good deal if you can’t afford it or if it’s not in your budget.
About those credit cards
While it’s always better to pay cash we understand that credit cards can be an easy and convenient way to pay for things. If you use them responsibly they create paperwork that can be used to create a budget (as noted above). In fact, in this case they are actually a bit better than cash. However if used irresponsibly, credit cards can turn become a huge nightmare. You could end up having to pay interest charges of 19% or even higher and be in debt for years. If there is a reason why you must use credit cards, try to pay off your balances every month. Failing this, at least make more than the minimum payments required. We saw one example recently where a person had $10,000 in credit card debt at 13.10% / If he were to make only the minimum payments each month it would take him 27 years to pay off the $10,000 and he would end up paying back $21,271.
Think about a balance transfer
If you are carrying high interest credit card debt one of the things you might do before the holiday shopping season is transfer your balances to a 0% interest balance transfer card. There are cards like this available where you would be required to pay no interest for as long as 18 months. This could give you a sort of “ timeout” period where all of your payments would go to reducing your balance. If you were able to heavy up on your payments you might even have your entire balance paid off before your interest-free period expires.