You might have pumpkins on your porch, but it’s already time to make room for the year-end holidays in your budget.
“I was at Costco the other day, and I already saw Christmas trees, [so] we need to be thinking about it right now,” says Nick Givogri, a California-based regional executive for investment service Merrill Edge.
Here’s how to get started.
Work backward
Your past holiday spending is the best indicator of what you’ll spend this season, says Robert P. Finley, a certified financial planner and principal at Virtue Asset Management in Illinois.
“Try to get your credit card statements,” Finley says. “Try to look at your bank statements. What did I spend on presents? Did I have to do traveling? Did I have to fly somewhere?”
Once you’ve estimated past expenditures, create a baseline for this year that includes what you can reasonably save over the next few months.
For presents, Finley recommends setting a total and dividing it by the number of people on your list. Then prioritize. “If you’re going to spend $1,500 and you have 15 people on your list, some of them you might want to spend more than $100, and others you might want to spend less, and then you can work that way,” he says.
But presents aren’t all you’ll buy. Account for decorations, travel, donations and more. And don’t forget to build in a miscellaneous category. It’ll give you extra cushioning in case a co-worker gives you an unexpected gift — and you feel compelled to reciprocate.
“It’s always better to have a little extra room or miscellaneous — and then you don’t use it and it goes back into savings — than maxing out, and then something comes along and you’re stuck pulling out of savings,” Finley says.
Look ahead
Setting a spending limit is just the beginning. Budgeting requires discipline and regular check-ins, says Richard K. Colarossi, a certified financial planner and partner at Colarossi & Williams in New York.
“If you don’t revisit it, what’s the sense in having it?” Colarossi says. “You have to match the actuals to your budget and see where you’re over and under.”
Givogri agrees. He suggests setting a weekly reminder on your phone to review how much you’ve spent and how much you have left to spend. If you discover you overshot the budget on a particular gift, there’s hope.
“Make an adjustment to the other gifts or make an adjustment to other expenses that you may have for the particular month,” Givogri says, citing strategies such as eating meals at home to save money in anticipation of potentially costly holiday outings.
And always keep your budget’s ultimate goal in mind. It might be focused on the months of November and December, but it will affect your finances well into the new year.
“When you do a budget and start setting aside some money now, you’re probably going to help reduce credit card debt,” Colarossi says. “Otherwise, if you don’t budget and have the money set aside, what’s going to happen? It’s going to go on credit.”
You don’t have to pay for your presents in cash, but you should have the cash to pay them off so you’re not left with hefty interest fees, Colarossi adds.
While you’re thinking about all the gifts you’re going to give this year, plan ahead and budget as a gift to yourself.
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