When there is not enough money for everything we want (and there never is!), we can get the most value for our dollar by carefully planning how we’ll use the money we have. As the holiday season approaches, it is a great time to think through what your spending will look like to avoid starting the new year with money stress.
During the holiday season, a wide variety of expenses arise. Sometimes people do not make a plan because they don’t believe they can. “It’s so unpredictable,” they say. “I’ll just try to be careful, and hope for the best.” Unfortunately, just “hoping for the best” is risky.
Fortunately, it is possible to make a useful holiday spending plan. You can use this approach to plan for any holiday. We will focus on November, December, and January today.
Step One – Know how much money you have to work with.
First, be realistic. Keep in mind your basic monthly expenses for the months of November, December and January. Pay all your bills as usual during the holiday time. Total your basic monthly expenses, including:
- All usual bills and necessities
- Special expenses like birthdays or car registration that may come due during these months
Subtract this total from your income each month.
Add any savings you may have accumulated for holiday spending and figure your total amount available to celebrate the holidays.
Step Two – List your wants and prioritize.
Remember to include all categories of holiday spending. Categories often include:
- Gifts
- Decorations
- Babysitters
- Travel
- Special food for parties or holiday meals
After listing all wants, mark the items that are highest priority with a (*).
Step Three – Plan amounts to spend in each category.
Keep in mind your priorities. Use pencil and start with your highest-priority items first. You may prefer to work with a specific list of wants within each category, instead of working with whole categories. Give each item a price and figure out which ones will be possible within the budget you expect to have.
Step Four – Follow your plan!
Keep records of your holiday spending so that you know you are staying within your plan. Use a small notebook with a page for each category. Or use an envelope of cash for each category and spend from those. With this approach, you can spend without stress knowing that all costs fit into your plan. Keep your plan and your records to help you repeat the process next year.
Can you change your plan? Of course – it’s your plan. But if you are committed to keeping total spending within your limit, then an increase in one category must lead to a decrease in another.
Coming next week: Are you considering borrowing money to cover holiday expenses? Before you do, make sure you understand the extra cost involved.
Written by Barb Wollan
Barb is a Health and Human Sciences Educator with special interest in personal finance, especially retirement education, Volunteer Income Tax Assistance, and families at risk. Her goal is to help Iowans reach their important long-term and short-term financial goals.
