At this time of year, many people overindulge, whether it's overeating or drinking too much at holiday parties or spending too much on gifts and decorations. You'll regret the former the next morning; but with overspending you may not feel the hangover effect until the bills start coming due in January.
Here are a few tips for managing your holiday expenses to avoid a holiday spending hangover:
Budgeting. Before spending a dime on holiday expenses, calculate how much you can afford as a portion of your overall budget. Many financial planners recommend spending no more than 1.5 percent of your annual income on holiday expenses. Consider:
- Will your savings cover a few months' expenses in case of a layoff, unexpected medical bills or another financial emergency?
- Can you pay off all holiday-related bills within a couple of months?
- Do you already struggle to pay your monthly bills?
- Would you need to suspend retirement savings to buy gifts?
If you answered "no" to the first two questions or "yes" to the others, this probably isn't a good year to splurge. But even though you may not be able to avoid all holiday spending, especially if you have young children, you can limit the damage by careful planning.
Scale back. Examine how much you've spent in past years and look for areas to trim. Consider: gifts for family, friends and coworkers; decorations; new clothes/accessories; gift wrap and cards; special meals; year-end gratuities; and travel-related expenses. A few tips:
- Review old credit card and checking account statements to jog your memory, and try to recall unanticipated expenses.
- Arrange gift lotteries with family members, friends and coworkers so you can each buy fewer, nicer gifts for each other.
- Consider a gift moratorium. Others are also probably feeling the pinch.
- If the gift-giving gesture is important, suggest pooling resources with others to make a sizeable common contribution to a charitable cause.
- If you're traveling just to get away, consider a "staycation" this year.
Get organized. Once you've determined your overall holiday spending budget -- and before you start shopping -- make a list (or better yet, spreadsheet) including columns for:
- Everyone you need to shop for -- relatives, friends, coworkers, service providers, etc.
- A spending limit and a few gift alternatives for each person.
- How much you actually spend on each gift. If you overspend on one present you'll need to make up for it somewhere else to balance out.
- What you gave each person -- to avoid giving them the same thing next year.
- What each person gave you. That way, if you decide to "re-gift" something, you won't accidentally give it to the same person -- believe me, this happens.
- Other expenses (decorations, etc.)
Gift cards. If you give gift cards, several changes were made to the laws governing these cards. For gift cards sold on or after August 22, 2010, the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 requires that:
- Money loaded on gift cards must not expire for at least five years from date of purchase or after funds were last added.
- If the card expires but the funds haven't, you can request a free replacement card.
- Inactivity and service fees may not be charged until after 12 months of inactivity; after that, only one such fee may be deducted from the balance each month. (Fees for activation or lost/stolen card replacement are exempt.)
- All fees must be clearly disclosed on the card or its packaging.
- To learn more, click HERE.
A few additional tips:
- Note purchase return policies for stores and online shopping sites. Watch for deadlines, exclusions (e.g., for sale or clearance items) and restocking charges.
- Retain receipts. Many retailers will refund the price difference if an item goes on sale within a few weeks after purchase.
- Check whether your credit card agreement provides free product warranty extensions and/or price protection (i.e., will reimburse the difference if you find an identical item for less).
- While handmade gifts can be greatly appreciated, if you're doing it to save money don't overlook the cost of supplies and the value of your time.
- Along with checking newspaper ads and retailers' websites, also comparison shop online at sites like Shopping.com, Bing, Pricegrabber and Shopzilla before hitting the mall.
- When shopping online, look for the "coupon code" box at checkout. Numerous shopping websites, including MyBargainBuddy, Dealcoupon and Currentcodes post coupon codes (as well as printable hard-copy coupons) for hundreds of online and in-store retailers.
One final thought: Notice the new feature on all credit card bills that shows how long it would take to pay off your balance by making only the minimum payment -- as well as interest accumulated. That should make you think twice before running up holiday expenses you can't really afford.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.
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