It’s happening earlier and earlier every year: Summer hasn’t even ended and you start seeing Christmas decorations pop up in retail stores. These not-so-subtle reminders tell you it’s time to start spending money for the holidays.
“Shop early to get the best deals,” say our newspapers, economists and social media feeds. But the result of early shopping events, like Amazon Prime Day in July, is overspending on holiday gifts, attire and decor. According to one survey, 30% of consumers will spend two-to-six months paying off their holiday debt in the new year.
While there are legitimate reasons to seek out deals and shop early, no discount or promotion is worth throwing your budget into disarray. Here’s how to plan ahead and keep your finances on track
Set rules around gift-giving
Start by making a list of all the gifts you buy each year. There might be more people on your list than you think, including:
- Immediate family
- Nieces and nephews
- Closest friends
- Extended family and friends you’ll see at holiday parties
- A tip for your hairdresser, mailman or other service providers
- A gift certificate for a teacher at school
- Pets
For each group, set a limit in advance of buying any gifts. For example, limit yourself to $50 on friends and $25 for cousins. Alternatively, you might suggest a group gift, like an outing to see a play or a nice dinner, or you can plan a gift exchange, so each of you only has to pay for one meal or buy one gift.
Use the Three Circles method
The costs add up quickly, but there’s another solution for gift budgeting called “Three Circles.” Here’s how it works:
- First, get a sheet of paper and write your holiday budget at the top.
- Next, draw three concentric circles (a small one in the middle, with a wider circle around it and a larger circle on the outside).
- Add names of all your gift recipients to the circle that corresponds with how close you are to them: For example, children in the center circle and coworkers in the third circle.
- Allocate a portion of your budget to each circle. For example, if your total holiday shopping budget is $1,000, you may write $500 in the inner circle, $400 in the middle circle, and $100 in the outer circle.
- Divide the allotted amounts by the number of names in each group to give yourself a spending guideline. If there’s not enough money to go around, you might remove certain people from your list or brainstorm free/cheap gift ideas.
Build it into your monthly budget
Holiday expenses can feel like a surprise each year, but they shouldn’t be. Once you establish your annual budget for gift-giving, consider dividing it into a monthly average and automatically depositing cash into savings each month.
You might even open a dedicated Holiday Savings Account at your local credit union so you can earn a bit of interest on the money you deposit.
Stop giving out of obligation
Does gift-giving feel like repaying a debt? During the holiday season, it’s easy to fall into the trap of spending money for emotional reasons.
When someone buys you a gift, do you feel compelled to offer them something of a similar value? Will you give them something of higher value to send a certain message?
This performative giving can be referred to as a “holiday tax,” and you pay it every time you fall into the trap of polite reciprocity – giving out of obligation. This season, break the habit. Instead, offer a gift that fits within your budget, even if it’s just a hand-written note or a framed photo.
Understand why you shop
Before diving into pre-season deals, take a moment to examine your motives. Ask yourself:
- Why am I shopping today?
- Am I looking for an item on my list or being impulsive?
- Have I compared prices to find the lowest cost?
- Is my ego tempting me to spend more than I can afford?
- Am I shopping for a popular item for fear of missing out?
Based on your answers, you might realize there’s a better way to buy your gifts.
Keep Your Financial Goals in Mind
As you head into the holidays, it’s a good time to revisit your financial goals. Along with your spouse, kids and loved ones, keep track of your spending and make sure it aligns with your shared goals. If you’re not already using NFCC’s budget tracker, you can find a free copy here.
Don’t fall prey to the “permission to shop” attitude that comes with Black Friday promotions and the fear of missing out on the latest toy. Instead, have a solid plan that spreads joy to your friends and family without enforcing guilt, emotional spending, and the inevitable regret that comes with January’s credit card bill.