Five Ways to Prepare Your Finances for the Holidays
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As you prepare for the holidays and take stock of the gifts, decorations and other seasonal purchases you expect to make, you might be surprised just how easily holiday spending can get out of control.
If being more thoughtful about managing your money is at the top of your New Year's resolutions, start your holiday planning now.
Make a holiday budget, well before the holidays.
Make a list of all of your essential holiday-related expenses. But be as specific as you can, since extra expenses like stamps for your holiday cards or extra rolls of wrapping paper can tack on a significant layer of cost that goes well beyond gifts and travel. Decide how much money you can afford to spend in total, and then divvy it up by item, recipient, etc. Most importantly, stick to the plan as the season progresses. It's easy to be swept up in holiday cheer or caught off guard with last-minute purchases. Setting a budget in advance will help you figure out how much money you can devote to each category of expenses, including gifts, food, entertaining and other holiday cheer.
Be careful of spending on your credit cards.
Credit cards can be a useful tool to cover some of your holiday spending. That said, it's important not to get so carried away that you overuse or even max out your available credit. Before sitting down to map out your holiday spending, make a list of how much debt you're already carrying on your credit cards. Also, be aware of how that debt reflects your total debt-to-credit ratio, which most lenders prefer to see at or below 30 percent. Set a hard limit on the amount of credit you'll use throughout the season and be firm about not spending more than you can realistically pay back.
Save now—spend later.
Socking away small, affordable amounts is a great way to build a lifelong savings habit. It can also take the edge off when it comes to the holiday season. Find a way to easily set aside a few dollars from each paycheck, whether it's monthly, semi-monthly or weekly, and make sure that cash goes directly into a separate savings account. If you save $5 per day, that's $35 per week or $1,820 over the course of a year, which you can use to fully fund your holiday spending, pay down debt or prepare for retirement. Once you get used to saving $35 each week, try upping that to $40 and then $50. You'll create a manageable savings strategy that will help you develop true financial stability.
Get crafty when you can.
Nothing says “I love you” quite like a homemade gift. Plus, it ensures the recipient will become the proud owner of a one-of-a-kind item or get to enjoy a tasty treat. If you're not especially crafty but lack the funds to buy something for everyone on your list, consider creating your own “gift cards.” For example, you could pledge to lend your time and energy to help a relative or friend clean their home or volunteer to babysit for friends with children who could use a night out. The spirit of giving shows someone you care about them, and some gifts—whether you spend money, make something from scratch or donate your time—are priceless.
Make your travel plans as early as possible.
If you're one of the more than 115 million Americans who travel during the holidays, you probably already know firsthand that booking flights, renting a car and paying for gas or other travel expenses can add up quickly. Airlines, train stations, hotels and others in the travel industry tend to charge higher rates around the holidays, and those prices only rise as year-end approaches.
Although it's hard to not be sucked into the spending cycle of the holidays, a bit of forethought and budgeting will go a long way toward getting you through the end of the year with your finances intact.