How to Financially Prepare for the Holidays
It’s November already – can you believe it, boss?!
This is the time of year when I start scrambling on my holiday shopping budget and officially start my bargain-hunting. Do you do the same each year?
In an attempt to learn how to do this the right way moving forward, I sat down with one of our Bossed Up Trainer Team members, Grace Duddy Pomroy (aka “The Classy Frugalist“). She’s a financial educator, blogger, and coach, and has tons of valuable advice.
Here’s Grace’s best advice to financially prepare for the holidays:
Emilie: How can we prepare for holiday spending all year long?
Grace: This is one of my favorite topics and quite frankly it’s a lot easier than people think. My husband and I started doing this a few years ago and it was easier than we expected. We were fed up with bursting our budget every December and paying for it (financially and emotionally) in January and February.
So at the beginning of each year, my husband and I set a budget for how much we plan to spend on the holidays. I suggest making a list of all of the holidays where you buy gifts – our list includes Christmas, family birthdays, our birthdays, Mother’s day, Father’s day, and our wedding anniversary. We also include any other occasions we know about at that time where we might need to buy gifts like a friend’s wedding or baby shower.
Then, we decide how much we want to spend on each event. My husband and I like to focus more on the spirit of the gift and finding something that’s really right for the person. Sometimes that’s means we spend more on some people and less on others, but we try our best to not go over budget. Any leftover money is saved in our “gifts fund” for the next year. Then, we add up the total and divide it up over twelve months.
Over the past few years, we’ve grown this area of savings, we originally allocated about $50/month but now we are up to about $100/month which has made buying gifts much more enjoyable for us. It’s important that this money is set aside in a savings account separate from your checking account so it’s more challenging to access. Some banks can also “lock” the account so that you can only put money in and to get money out you have to call or come in in person so you aren’t tempted to take money out for another occasion. Similarly, there are even some banks that offer Christmas accounts just for this purpose where you save the money over the months and they deposit your savings into your checking account in November.
Personally, I like our simplified approach of keeping the money in our own savings account a little better because it’s easier to see how much money is leftover after the holidays are done, rather than having that money get lost in our checking account.
Consider your cash flow
Emilie: For those of us who failed to do that, how might we start preparing now?
Grace: Don’t get yourself down, so many people are in this boat with you! You’ve still got a few months until the holidays start. I invite you to step back and consider – how much money can you afford to spend on gifts and who do you really need to buy gifts for?
I’ve seen many people spend money on gifts that weren’t really appreciated whether that was for co-workers, friends, or even a family member. Consider your gifts as an investment in your relationships. Who do you want to invest in this holiday season? Similarly, who might appreciate even more the gift of your time? In our over scheduled lives, I know many family members would appreciate time spent together doing something inexpensive or free like playing board games, looking through old photos, or sharing hot chocolate and a conversation by the fire more than a cheap department store gift.
Who might appreciate your talents? When I was in graduate school, instead of buying wedding gifts, I would make an art piece for the couple where I hand wrote out their favorite poem or quote in stylized lettering and framed it. It was much cheaper than a traditional wedding gift, and much more cherished. Who might appreciate your service or skills? You might find that your family or friends might appreciate a personal shopping buddy, help organizing their closet, a few hours of yard work, etc.
Look for creative gift ideas before you jump to buying something. Last year, I gifted every person on my team at work with a personalized note of gratitude. I told them what I appreciated about them and highlighted their strengths. Each card took me about 15 minutes to write and they were probably some of the most meaningful gifts I have ever given. Even today, some of my coworkers still have their cards on their desks and it’s almost a year later. It cost me my time and about $7 for the stack of 12 cards.
Once you have a clear sense of what you need to buy, consider this: how much money can I put toward these holiday purchases now? And, how much can I put toward it during the beginning of next year? If you can’t attain your gift-giving financial goals, trim them down. If you can, set boundaries and expectations among family and friends so there aren’t any surprises. There’s nothing worse than going into debt for gifts that may go unappreciated.
Can credit cards work for you?
Emilie: Is there a strategic way to use credit cards for holiday shopping? What are the risks?
Grace: You can probably sense that I’m not a big fan of going into debt for the holidays, particularly credit card debt. Depending on your card, this debt could cost you upwards of 18% or even more in interest and it just isn’t worth it.
If you don’t anticipate being able to pay off your debt by the time your credit card bill becomes due I wouldn’t suggest putting your gifts on your credit card. It’s too easy to go into debt and have the interest snowball out of control. If you have done the hard work of setting a budget and you really need to borrow some money, I would suggest borrowing from yourself first. Before my gift fund, I borrowed from my emergency fund but I was always careful to pay myself back.
I wouldn’t use this strategy unless your only other alternative is credit card debt – borrowing from your savings isn’t a good habit to get into but at least it’s interest free. After you pay yourself back, begin setting aside money for the next year’s gift fund. If you can afford to pay yourself back, then you can afford to start a gift fund for next year, even if you have to start small.
If you must go into credit card debt, which I do not endorse, be cognizant of the interest rate on your card. If you have more than one card, charge your purchases on the card with the lowest interest rate.
My husband and I almost exclusively use our credit cards for holiday shopping for a few reasons. First, we know we can pay back the amounts we are charging on our cards. Second, credit cards tend to be more secure. Third, we enjoy racking up points and taking advantage of perks.
If you plan to shop with credit and have more than one card, make sure you are using the card that is going to get you the most bang for your buck on that purchase. For instance, we will likely use my husband’s Amazon credit card for the most part because most of the gifts we buy are from Amazon and he gets 5% cash back. Also, I know many folks who choose to cash in their credit card points around the holiday season to buy gifts for family and friends. That’s another inexpensive way to purchase gifts for people if you are low on cash.
Emilie: What other money-saving tips and tricks have you seen work well during the holidays?
Grace: A couple of things. Like I said earlier, don’t fall into the trap of thinking that you have to buy everyone on your list a tangible item for the holidays. Think creatively – what would this person most appreciate service, time, my talents.
Last year, my husband and I gave almost all of our family members donations to charity for their birthdays. We spent a lot of time trying to find charities that best fit their passions. We were able to give a gift that kept on giving, use money we had earmarked for charitable giving, and receive a deduction on our taxes.
Also, remember you don’t have to spend the same amount on every single person on your list – in most cases they won’t know the difference. Find a gift that’s meaningful, for some that will cost more than others. Focus on the value to the person, not the cost to you.
Another tip is to start making a list in advance of what you’d like to purchase for each person and keep an eye out for sales. If you know what you’re looking for, Black Friday sales can be incredibly helpful. However, if you aren’t quite sure, it can be a good excuse to take advantage of good deals without having a set purpose in mind for your purchases.
If you can, start a conversation with your family about doing gifts differently. I know many families who give minimal gifts to one another, do a Secret Santa, and/or focus solely on the kids so there’s less pressure for people to spend money on every single person.
Tracking tools can help
Emilie: Are there any other tools or resources you recommend to keep holiday spending from getting out of control?
Grace: Yes! My absolute favorite money tool for any situation is mint.com. It’s a great way to stay on top of your budget and keep track of your bills. I’d also suggest checking in with your bank or credit union to see if they have any holiday savings programs that you can take advantage of.
Last, but not least, if you are worried about staying on track for your finances throughout the holiday season, give yourself a strict limit and stick to it by using only cash or a Visa credit card with a specific amount on it. This can help you enjoy your shopping without breaking the bank.
How are you preparing financially for the holiday season?
I’d love to hear your thoughts, questions, and comments below this post. And if you found Grace’s advice helpful, be sure to share this interview with your networks now, too!