Don’t Wait To Plan Your Holiday Shopping

Tips and strategies to handle holiday spending without destroying your finances

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The 2014 holiday season is a few short months away, yet many are financially unprepared to begin shopping, according to the National Foundation for Credit Counseling. In recent years, Americans spent an average of $800 on holiday-related expenses. That’s more than a week’s wages for many workers, and in spite of the fact that the December holidays are an annual event, people routinely neglect planning for them and resort to charging their purchases.

Consider the ramifications of this lack of planning: If you charge $1,000 and make only the minimum monthly payment of 2% of the balance at an Annual Percentage Rate of 18%, it will take you 12 years to pay off the debt. Think of it this way: ­the ghost of Christmas past will haunt you until 2026. Furthermore, you would have paid a total of $2,353 for the $1,000 worth of goods and services purchased.

Since debt is a gift no one wants, the NFCC is suggesting steps that consumers can put in place now to have money available for holiday spending and create a debt-free holiday.

Before trimming the tree, trim everyday spending. Review current spending looking for leaks. Plug those leaks and use the found money for holiday spending. Amount saved by Dec. 25 at $1 per day: $150.

Adjust the W-4 to accurately reflect the amount of taxes owed. The average income tax refund in recent years has been close to $3,000, but Uncle Sam only returns that money in April, long after the holiday bills should have been paid. Amount saved by Dec. 25 at $250 per month: $1,250.

Commit to shaving $10 off of 10 spending categories. Some obligations such as rent, mortgage, and car payments are fixed. There are, however, other categories that offer a great deal of flexibility. Cut back $10 each month on categories such as food, clothing, gas, utilities, and entertainment without feeling deprived. Amount saved by Dec. 25 at $100 per month: $500.

Sell unused items. Since others are also shopping, this is the perfect time of year to sell items that haven’t been used for the past year. Amount saved by Dec. 25: $100.

Open a separate holiday savings account. Don’t mingle the holiday money with existing savings or checking accounts, as it could easily get spent on other items. Amount saved by Dec. 25: $1,000.

The holiday shopping season is a wonderful, but a potentially dangerous time, because of the temptation to undo progress made toward improving our finances during the year. The key to getting through without ending up with a financial hangover in the New Year is planning, so you can get the most of every dollar without overspending.

Create a real budget for holiday shopping, one that fits within your overall household spending plan, including a list of everyone you plan to buy a gift for, along with a specific amount to be spent per item. Get real prices by browsing online, completing your budget before you make any purchases, whether online or in-store.

When you total the costs of all your planned spending, including the cost of such items as wrapping paper and decorations, you need to have the cash to cover it. If not, you’ll need to cross items off your list, or buy less expensive gifts and other items. It makes no sense to borrow money, via credit cards, to finance your holiday shopping.

Finally, after right-sizing your list to fit your budget, you’re ready to actually shop. Carry the list with you and refer to it as you make your purchases, to avoid blowing your budget via impulse spending.

If you’re still paying for 2013 holiday spending, consider rethinking your gift giving for this year. It makes no financial sense to pile new debt on top of old.

 

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