It never fails. Every year at about this time, the appearance of ornaments, tinsel and holiday decorations always surprise me. I think to myself, "It's that time of the year already?!"
I'm no grinch. I love the holiday season. I'm sure many of us look forward to spending time with family and friends. But, hunting for a parking space at a crowded mall? Not so much. Yet, every year I meet people who are stuck with a "holiday hangover". It's so easy to get caught in the spirit of the season and spend more than what we had intended.
Over the next two weeks I want to help you avoid just that. So before you make your list, and check it twice, I'll have tactics and tips to ensure your holiday bills aren't naughty, but nice. (Next week, I'll tell you how to get the most from every dollar you do spend this holiday season.)
According to the Retail Council of Canada, Canadians spend about $1,500 on gifts each year. We also tend to reduce our credit card balances in November in anticipation of holiday shopping. Over the last 14 years, credit card balances have declined by about 0.3 per cent in November while rocketing up to five per cent in December. This tells me that a significant portion of our $1,500 gift spending winds up on our January credit card bills.
* Calculator: Calculate how much you can afford to spend on your credit card
The first thing you need to do is create a spending plan. While $1,500 is the average, you may not necessarily need to spend that much. The decision is personal, but each of us needs to determine how much we can reasonably afford to spend. Once you determine the total budget, then you can work out how much to spend on each person on your gift list. Not the other way around. After all, it is not the value of the gift that matters, but the thought. And don't forget to include incidentals like parties, decorations and food in the budget.
Tracking expenses is vital if you want to stick with a plan. I find using just one funding source (the pre-holiday cash withdrawal, a debit card or a single credit card) makes tracking a lot easier. Waiting until January to check your bills is a sure-fire way to overspend.
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Knowing when to shop also helps keep your expenses down. We've all been to the mall on the last weekend before Christmas and we know what happens. We get tired and frustrated among the crush of last minute shoppers and wind up making expensive impulse buys in desperation to escape and cross the final names off our list.
Every year, more and more of us are avoiding the crowds by turning to online shopping. Again, timing is everything. By shopping early you can avoid having to pay expensive overnight shipping costs. I know many people have been enticed by a great online price, only to have the savings erased by high shipping costs.
And if that's not enough of a reason to shop early, what about this: It's quite possible that the most desired items will sell out early this holiday season. Retailers have been reducing inventories throughout the downturn so they don't find themselves with excess stock in January.
* Related: When is the best time to shop for deals?
Another useful strategy: Set a deadline for paying off all holiday expenses. If you do use a credit card, set a date when it will be paid off. Why? If you charge $800 this holiday season, and then make only the minimum payment on that debt, it would take 10 years to pay off and end up costing almost twice the original price (assuming a minimum payment of 2.5 per cent or $10, whichever is greater, and an interest rate of 18 per cent).
Despite our best efforts, some of us will still wind up saddled with more debt to start the New Year. I recommend consolidating any high interest debt into a single lower interest loan or home equity line of credit to help lower the interest costs.
Next week, we'll look at ways to spend effectively when building your holiday wardrobe, planning your holiday party calendar and buying gifts for those you love.
Thanksgiving gift... and the Christmas gift..
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