Q: I have a good savings plan, an emergency fund I’m increasing, and a small portfolio I use as emergency funds, as well as an IRA and a pension. But I always spend too much at Christmas time; it takes me two months to recover. How can I stop? —William Confer
A: The only way to keep yourself from going overboard is to make a budget. Figure out how much money you can comfortably spend on your holiday shopping this year and then divide that by the number of people you need to shop for. If you’re worried about surprise gift swaps or last-minute additions, build some extra recipients into your count.
Knowing roughly how much you can actually afford to spend on each person’s gift will help you steer clear of pricier presents that could easily push your total above your set amount. Buying gift cards is also an easy way to keep track of spending and ensure you don’t go overboard.
If you’re still worried about being tempted, try taking out the total amount you want to spend this holiday in cash, suggests Paul Dolce, a financial planner in Dublin, Ohio. Keep this cash separate, either in a single envelope or in a series of envelopes — one for each recipient. Then pay for all your gift purchases with just this money; don’t swipe your credit or debit card. Once you’ve spent all the cash you’ve withdrawn, he warns, you’re done.
It’s too late for this year, but if you want to plan further ahead next year, Phoenix financial planner Kevin O’Reilly recommends setting aside money earlier in the year in a so-called Christmas Club account. Many credit unions (and some banks) offer these targeted savings accounts, which allow you to contribute little by little throughout the year, and then withdraw the money at holiday time to spend on gifts.
You could even implement the concept on your own by creating a separate savings account. Determine your spending plan and divide the total amount by 12, then set up monthly transfers to move the money from your checking account.
These accounts are “a great way to avoid foreseeable financial surprises, such as extra spending at Christmas,” Reilly says. “You can establish how much you want to spend [in advance], outside of the emotions — and ads — of the holiday season.
“Better yet,” he adds, “set your budget in the aftermath of Christmas, while you’re still feeling bad about how much you just spent on gifts.”