Create Financial Peace This Holiday Season

Every year, Americans are bombarded with advertisements, catalogs and media letting us know we NEED to buy the latest and coolest toy, TV, jewelry, car or thing.  “If you really love her, you need to buy her a diamond.”  “BANG! POW! BOOM! New game for your PS Wii Box One!”  One ad even advises you to not overdo the holiday spending and instead purchase a new automobile, no model of which costs less than $30,000!  Such a show of resistance against the tide of consumerism and commercialism, going into debt to buy a luxury car.

Don't go into debt to get here.

Don't go into debt to get here.

Obviously, I am not a fan of gross materialism, and I do not want anyone going overboard to get me stuff for Christmas (unless it’s an air compressor and finish nailer).  The winter holidays, whether Christmas, Hanukkah, Kwanzaa, Yule or simply the Winter Solstice, is not really about buying stuff, or getting stuff.  It should be (and is at its root) about lighting the darkest time of the year with spirit and community and love.  Americans generally tend to choose to celebrate this time by sharing gifts with one another, and that spirit of generosity is to be held high and cherished.  At the same time, it shouldn’t be the main point of the holiday celebration, nor should it create undue stress, either emotional or financial.  Leaving the reduction of relationship stress to some other expert, what can you do to make the holidays better for your actual budget, and leave you in good condition to ring in the new year?

First, you need a plan (this is a recurring theme in this space).  Know how much you can spend on gifts, food and travel this holiday season.  It would help if you have set aside some funds for this purpose throughout the year (some credit unions offer “Christmas accounts,” but you can do it yourself), but even if you are spending only what is there in November and December, setting a budget is of highest importance.

Be very explicit in your budget, setting a line item for each expense.  This will force you to prioritize your expenses, and prevent you from going overboard by spending an extra $10 on every little thing (think death by ten thousand paper cuts).  This may also create opportunities to be creative, trying to find gifts that really fit a person, instead of getting the latest trendy gift of the season.  If your budget is small, combine several small portions into a family gift, or turn small dollars into a larger gift with your labor.  Everyone appreciates a thoughtful holiday snack tray, and knows how much time you invested to bake it.  It may feel odd putting a dollar figure next to everyone, but used well it will help ease the pressure of making ends meet, and allow you to focus on the fit of the gift, not just the cost.  In this case, the thought does actually count.

There are a couple of key points to avoid.  First, do not let your holiday budget affect your regular budget.  Every year, my office is full of folks who pushed off their mortgage payment to buy gifts, and that started the snowball that led them to bankruptcy.  A new Xbox is not much good without a house to play it in.  Take care of the required items, then spend what’s left on gifts.

Second, if you are financing holiday spending on credit, make a plan for paying that debt down beginning in January.  Don’t just adjust to the minimum balance due every month, but instead plan on paying that (if not all) holiday spending down by June or July, so you can then save for next year’s holiday spending.  If you can’t make that adjustment, you probably need to spend less, and adjust your budget to reflect your ability to pay it down.

If you take a few steps ahead of time, stick to your itemized budget, keep your financial priorities in line and have a plan for recovery and savings, you can take the stress out of holiday finances and put a little peace in your bank account.  How you deal with your weird uncle is up to you.

This post is an edited version that appeared on my prior blog in 2010.