Saving for Christmas

Article by R. Joseph Ritter, Jr. CFP® EA

The Christmas season is my favorite time of year. Family get togethers, time with children, and, of course, gifts on Christmas morning. We all enjoy seeing the faces of our children and grandchildren light up on Christmas morning. Unfortunately, the parents’ faces light up in January when the credit card bill arrives.

Over-spending at Christmas and fitting Christmas gifts in the budget are common struggles among families from year to year.  However, the joy of the season does not need to be broken by financial stress.  Here are some practical tips for making sure you do not over spend on Christmas:

1. Plan ahead by buying some gifts in November or even October, so that all the gifts do not come out of your December (or January) income.

2. Use a sinking fund to accumulate savings for spending on Christmas gifts and travel. The sinking fund requires that you first have an idea of the amount you plan to spend at Christmas.  When you write a budget, you should be thinking about the amount you will spend on gifts anyway, so this can be a starting number for your sinking fund.  Then you will divide this total number by 12 months, and each month you will deposit that amount into a separate savings account.  Some banks offer a Christmas savings account just for this purpose and can help you set up automatic transfers from your checking account.  Come Christmas-time, you will have this money to spend on Christmas gifts, travel and any other special items you included in your sinking fund, and you can spend this money guilt-free.

3. Don’t use a credit card to buy gifts.  The magic of the credit card is that you don’t really know how much you are spending, and banks count on this to make money from interest charges, late payment fees, etc.

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