The holidays can be a stressful time when it comes to budgeting. It seems that December comes with a tidal wave of expenses and expectations that are frequently in excess of other months. So what are the best approaches to enjoying a holly jolly Christmas without the January hangover of regret? I recently wrote a piece for MoneyGeek addressing this very issue.
1. What questions should consumers ask themselves before creating a holiday budget?
Will this purchase keep me from achieving my long term goals? The holidays are an emotional time, and they can trigger perceived needs of immediacy. If your long-term goals require you to use that Christmas bonus to fund your IRA or make that extra house payment, then don't eyeball it for gifts. Ideally, you created your holiday budget at the beginning of the year alongside your budget for long-term goals. And if you didn't, just after Christmas is a great time to build one for next year. By making contributions to both budgets from each paycheck year round, you can avoid scrambling to make ends meet AND making impulse buys.
2. How can buyers balance the emotional with the practical when it comes to buying meaningful gifts?
I believe the impulse purchase is the most threatening part of the holidays, but there are many tactics you can employ to stay a step ahead of temptation. Avoid the mania of Black Friday and other peak shipping times. Create a list in advance. Shop online where it is easier to find the best bargain. Avoid retail and big box stores. Flea markets and thrift stores can be gold mines for gifts that might not set you back as much in the wallet and add that much more important personal touch.
3. If getting gifts for everyone on the holiday list is going to put someone in a monetary bind, what alternatives do they have during this season of gifting?
Most people understand that time is more valuable than money. So if you have more time than money, give it instead. Volunteer, and ask those in your circle to share the gift of time with you. Consider handmade gifts or baked goods. Paint anything. All of those methods are time intensive, and rarely will the effort go unnoticed or unappreciated.
4. What methods or strategies can shoppers use to adhere to their boundaries?
As I mentioned above, the best thing someone can possibly do is to start early. Build that Christmas budget in January and set a little aside each month. Within your Christmas budget, identify how much you will allocate to gifts, travel, food, and decorations. This will keep you from having to decide between buying the 20-foot inflatable Santa or crossing three state lines on the way to Grandma’s. If you already consistently budget for the holidays year round, take this opportunity to review last year’s budget and make any adjustments. And most importantly, review this budget with your spouse. There’s nothing worse than building the perfect Christmas budget only to discover that your partner fell victim to impulse and blew your entire budget on Black Friday.
5. What is the rule of thumb for how much to spend?
This is tricky as there is no set rule of thumb. The biggest key here is to plan your spending rationally in advance, but the amount you choose to spend should really be defined by your ability. One suggestion I will offer is to only buy what you can pay for today. You don’t necessarily have to avoid big ticket items, but if you want to purchase something like a vehicle, try to do so with cash and stay away from financing. Other than that, just spend what you can afford to part with. High income earners may wish to spend a larger chunk of their discretionary income. Kids, too, might spend a higher percentage of their income because they don’t have to worry about the day-to-day expenses that are generally covered by their parents. Research suggests that the average American spends between $1000 and $1500, but the average American is also broke, so that may not be the best guideline to follow. Ultimately, you want to keep your spending total at a level that won’t leave you light when it’s time to pay the rent in January.