Money & Career

Christmas on a budget: How to survive the holidays with cash to spare

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Money & Career

Christmas on a budget: How to survive the holidays with cash to spare

Is it possible to celebrate the holidays and escape a financial hangover in January? Absolutely. You just have to know how. We look at situations that can typically lead you astray and show you how to avoid blowing your holiday budget, so you can enjoy a stress-free season.

The budget
No one actually wants to make a Christmas budget, but having no budget gives the illusion of no limits – leading straight to debt. A budget will help you avoid the slippery slope.

First, determine how much you can afford to spend. Margaret Yang, a financial adviser with Edward Jones in Toronto, recommends keeping your Christmas budget to within two to five per cent of your annual income. The more detail, the better.

"People often have a rough idea of the total amount they want to spend, but they don't know the specifics," says Yang. So make a list of all your expenses – gifts, decorations, food and travel – and allocate the appropriate amount for each item.

Use the same approach when buying gifts for friends and loved ones. Rather than feeling restricted (OK, maybe you will a little), you can spend within your Christmas budget guilt-free.

Avoid impulse buying
When shopping, you'll likely be tempted to buy more extravagant gifts – that flashy video game system instead of a soccer ball for little Johnny.

"Before you purchase the more expensive item, ask yourself, Where am I going to get the money for this?," says Brenda Purschke, a counsellor at Credit Counselling Services of Alberta in Calgary. Keep your receipts and track your spending to help you stay the course.

Even if you're celebrating Christmas on a budget, you can still enjoy the season with a little creative thinking: use coupons, purchase food items with your extended family and then divide them up (buying in volume is cheaper), go in with other family members for a group gift – maybe that video game system for Johnny – and give "gifts of love," such as homemade cookies or a digital photo album.
Material world
"Unfortunately, in our society gifts are now equated with love," says Al Antle, executive director of Credit and Debt Solutions in St. John's, Nfld. Mixed in with that is a desire to keep up with the Joneses, reward yourself (and your family) and affirm your status. Commercials and retailers only reinforce that heady cocktail. "But the holidays aren't about the size or number of presents under the tree," says Antle.

If you're getting caught up in the material world, try sitting down with your immediate family (partner and kids) and talking about what you'd like to get out of the holidays. The answers will help determine how you spend your budget. Perhaps the kids would be happier with one or two special gifts, for example, and spending the balance of the budget on a few special family outings.

Additionally, you can contact family and friends and let them know that you are planning to purchase small gifts to keep within your budget and ask them to please do the same for you. Antle has 15 siblings, and to control costs in his large family each person plays Secret Santa for one other person, not the entire group. You can also consider making a small donation, either in cash or items you no longer use, to a charity, which allows you to give and receive.

Last-minute shopping
It's Christmas Eve. You've got less than 24 hours to finish your shopping. You race to the mall, grab the first items you see and spend way more than you planned. Sound familiar? Try shopping off-season. "We've not paid full price for wrapping, bows, Christmas decorations or cards in years because we buy them in January,” says Antle. With time on your side, you can also look for the perfect gift, comparison-shop to find the best price or wait for the sales.

If you're not certain what to get a friend, look to her interests and hobbies for ideas. Admittedly, it's tough to get into the holiday spirit in July, but by holding off on wrapping gifts until Dec. 15, Antle says you can still capture the season's excitement. Now, getting caught up in the season and buying again is also a risk, so keep a list of everyone you've shopped for and what you've purchased to remind yourself that you've already taken care of that person's gift. If you're a last-minute type, shopping ahead won't work for you. In this case, Antle believes gift cards are the way to go as the selection of merchandise will be limited.
Plastic fantastic
How you pay for your gifts depends on your personality. Some people like cash; others prefer plastic. It's often easier to set limits with cash because it's tangible. "You're actually physically parting with the money," says Purschke. However, credit cards are fine as long as you treat them as credit and not extra money. "Credit is not a bad thing; the challenge is when are you going to pay for it?" explains Antle. If you think plastic is fantastic, Purschke suggests using a cheque book register to track your spending. Also, if you put spending money in your account beforehand, all the better, because you won't be stressed about finding the funds to pay off the bills.

Alternatively, you can buy gift cards at stores where you like to shop and use those to purchase your gifts. If you buy a $25 gift card, you've got a built-in spending limit, explains Purschke. You could also use a debit card, but then you're drawing from your bank account, and it's easier to spend $29 instead of the $25 you had allocated using a gift card.

As for merchant cards with attractive introductory offers, the same thinking applies – use them only as a method of payment that you pay off right away (especially as their interest rates are generally higher than regular credit cards – as high as 28.8 per cent, according to the Financial Consumer Agency of Canada).

Frenzied pace
You rush to fit in a little shopping at the mall after picking up the kids, so you eat out. You're attending four parties, so you fill up on gas more frequently and purchase more hostess gifts. The result is that you're spending more. To save your money and your sanity, simplify. "Encourage people in your circle to have a group party instead of holding four separate ones," says Antle. Or only participate in the activities that mean the most to you.

Organizing can help as well. Make meals ahead of time and freeze them, so you can heat them up quickly, or pick up premade food, such as salad in a bag and precut carrots, which will allow you to assemble a meal quickly. 

The payoff
If you don't save money ahead of time for holiday expenses, the inevitable whopping bill will arrive in January. Yang's advice? Pay it off in full as quickly as possible. "Credit card companies can charge 18 to 19 per cent. If you carry a balance, your debt will double in four years’ time," says Yang.

To pay off your credit card quickly, sign up for a new credit card with an introductory low interest rate offer (as low as 2.9 or 3.9 per cent) that lasts anywhere from six months to a year, and switch the balance from your old card to the new one. Remove the possibility of running up two cards by cutting up your old card and avoid adding additional charges to the new card as well. Or open a line of credit, which typically has a lower interest rate of prime plus two per cent or prime plus three per cent, and use it to pay off the credit card as soon as possible.

Finally, cut back on your discretionary spending for a few months: take a brown bag lunch, reduce entertainment and use public transit. If you're having trouble, consider contacting a credit counselling service, such as Credit Counselling Canada or Credit and Debt Solutions.

Want to cut down on the gift giving in your home?
Read about how to stop your family from giving too much.

This story was originally titled "Festive-Friendly Budgeting" in the December 2007 issue.

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Christmas on a budget: How to survive the holidays with cash to spare

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