3 EASY Steps for Avoiding Christmas Debt Blues

So, it’s the end of December and you’re thinking about how you wished you hadn't spent so much on the holidays this year so that you wouldn’t have holiday debt to pay off in the new year. 
 
Well, what if there was an easy way to roll into November next year with enough money for your holiday shopping and plans? 
 
Follow these steps and you’ll find your holiday expenditures are less stressful and maybe even joyful! Our family started doing about 10 years ago, and it really works!
 
Step 1 – Create a Holiday Budget for the new year

For those with discretionary income, the Better Business Bureau and Clearpoint Credit Counseling Solutions recommend a holiday spending budget of 1.5% of your gross income. Their Holiday Budget Planner uses the gross income that you enter and calculates holiday spending broken into categories like Gifts, Parties, Travel, Food, and Donations, which you can adjust as needed.   See the example below using a gross income of $100k.

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Once you have the gross income entered, you can adjust category values as you see fit.  (NOTE: Be aware that you'll first need to adjust a category down before you can adjust another up).  Once you're satisfied with your adjustments, you can click NEXT and add more detail under each category, like who you’re buying for and how much you plan to spend on each person (you might want to budget for 1 extra person, just in case you forgot someone). This basically creates a mini-budget just for the holidays with a good amount of detail under each of the holiday categories.  

Give it a try and make adjustments as needed, OR create your own holiday budget using a percentage that you know will work for you. Then go on to Step 2.

NOTE: Don’t forget about possible expenses like:

• Cards, postage, and shipping (although I recommend sending online cards or emailing photo cards)
• Decorations (if you can work them into your budget, have at it!)
• Entertainment, including food and drinks
• Year-end tips for service providers

Step 2 – Save a small amount each pay period

Having the money set aside when it comes time to doing your holiday shopping is key to avoiding debt for the holidays.

To get started with this, you’ll want to divide the total Holiday Budget amount from above by the number of pay periods you have in the year.

Using the Total Budget amount in our example above, consider these 3 common scenarios:  

• $1500 divided by 12 (if paid monthly) = $125 to save per month
• $1500 divided by 24 (if paid twice a month) = $62.50 to save per pay period
• $1500 divided by 26 (if paid every 2 weeks) = $57.69 to save per pay period

Step 3 – Set up a “Christmas Club” savings account

Now you need somewhere to save that money. I recommend going online (or calling or in-person) and set up an additional savings account at your bank or credit union. Name it “Christmas Club” or something that reminds you of what you’re saving for. 

Then set up an automatic transfer from your main paycheck account to this “Christmas Club” account using the amounts and frequency you determined in Step 2, so that by the time you’d like to purchase gifts, food, etc… you’ll have most of the money in that savings account. In fact, you’ll have some money in the account all year long, so if you see something that would be perfect for Mom mid-year, and it’s at the budgeted price point, you can purchase it early with cash and joyfully check Mom off the gift list.

Notice that I said “with cash”.  You’ve done an incredible job setting aside this holiday money in a savings account so that you’ll have the money on hand to pay for the holidays.  Avoid using a credit card or you’ll run into trouble.  If you don’t follow my advice, and you do use a credit card, please please please stick to your budgeted amounts and then transfer that exact amount from your Christmas Club account to your checking account and send a payment to the credit card company right away.  Do NOT wait for the credit card bill to arrive. Take care of it right away if you want everything to work smoothly.
 
You can do it!  And I'll be right there with you! Give it a try and let me know how it worked for you next year.

NOTES:

• If you aren’t already budgeting, I urge you to start, and incorporate these ideas into your budget.
• If you already budget, you may need to adjust some of your current categories lower in order to include holiday budgeting on a monthly basis.

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Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.