Even the most cautious shopper can get a little out of control during the holidays. However, with a bit of planning and oversight, you can maximize your holiday spending power and take a realistic, organized approach to the financial side of the season. Here’s how:
• Determine cash flow. Each year, millions of shoppers fill the stores without knowing their financial limits. To determine what your cash flow (money in, money out) allows in terms of spending.
• Set your holiday spending cap. Subtract the total of your expenses from your income for the next month. Add the leftover sum with the cash you have in savings. If you expect a bonus or other financial gift in the near future, add that in too. For example, let’s say you have $200 in excess income, $800 in savings, and a $500 bonus. The total is $1,500. Next, determine how much of that you should spend on the holidays, and how much should go toward paying off debt or saving for a future financial goal. The amount you decide to part with is your holiday spending cap: the maximum you should spend on this season’s extra expenses.
• Make a list. The problem with many holiday shopping lists is that they are incomplete. An effective list requires detail: what you intend to buy, for whom, where you’ll get it, and the top price you are
willing to pay. Include everything: gifts, decorations, cards, special food and drink, travel expenses. Total the cost: is it more or less than your holiday spending cap? If it exceeds your limit, scale back.
• Use the right payment tools. The average American spends roughly $1,000 on gifts during the winter holidays. Many people use credit cards, not savings, to pay for these items. While credit cards are useful, any debt you incur with them should be taken on as a very short-term loan. Why? Imagine you spend a grand on presents, and charge it to a card with a 15 percent APR (annual percentage rate). Pay $25 per month and those gifts will cost an extra $395 in interest charges and take nearly five years to repay. A better strategy would be to repay the balance in three monthly installments of $350, for a total finance charge of just $25. If you choose to charge, select one credit card to use rather than several. Tracking your spending will be much easier, and if you have the opportunity to build points for cash back, air miles, or other rewards) it makes sense to take advantage of these benefits. However, if you really want to save money, get those greenbacks ready. Studies show that people who shop with cash spend 30 percent less than those who spend with plastic. Even debit cards don’t have the same emotional impact as handing someone your hard-earned cash. Keep in mind that there are drawbacks to using cash. You don’t get the consumer protection laws that come with credit instruments,
and you have to track spending manually, rather than with a convenient statement from a financial institution. Be extra careful with large sums of cash — lost or stolen money is gone for good.
• Track spending. The best-laid plans can evaporate once you enter the chaos of a mall in full holiday
swing. Tricks for sticking to your list and monitoring spending as you go include:
- Carry a small notebook and record every purchase you make (keep receipts as well). Jot down the date, item, and cost. Total each day’s spending or keep a spreadsheet record on your computer.
- Check your online credit card and bank balances on a regular basis. This will help you keep an eye on the big financial picture.
- Be conscious of how frequently you visit the ATM, and how much you take out before you have to go again.
Spending more than you intend or can afford is not an inevitable part of the holidays. You can make the most of this season by taking the time to plan, knowing your financial limit, and practicing wise spending techniques.