A financial planner’s tips to trim your holiday budget
Holiday is the most wonderful time of the year. But it can also be the most stressful, especially on our financials. For many people, the holiday also means lots of spending.
The National Retail Federation survey of 7,276 consumers conducted by Prosper Insights and Analytics from October 5 to October 13 resulted that, according to MassLive, the average person plans to spend $805.65 this year. The number is up slightly compared to the $802.45 per person average in 2014 holiday seasons.
To avoid one giant bill after the holiday, people have to try to control their holiday spending.
Natalie Taylor, the Certified Financial Planner, shares some tips on holiday budgeting, as reported onLearnvest.
For a start, we have to know exactly how our spending looks like. It will give us the information we need to make a plan.
After making a proper plan, we need to set new parameters on holiday spending. For example, how our families exchange presents, especially when it is getting too much spending to buy small presents for everyone. Create some rules, such as we will only give presents to the kids.
Taylor also suggests on deciding on one splurge holiday each year which we allow ourselves to get a big gift for each other. The splurge holiday could be Christmas, Valentine's Day, birthdays or your anniversary. Just be sure to keep it to one per year.
In addition, think of our spending in terms of financial trade-offs. The smaller gifts or fewer decorations now could mean a luxurious trip in later time. The trade-offs also mean that we can decrease spending on other items that are more important than holiday's - like saving for college - and trade the savings for holiday spendings.
The holiday budget will also be more manageable if we open a non-monthly savings account for holiday spendings. This account can also be used to cover other costs that don't occur every month but have to be paid every year such as insurance premiums and quarterly tax bills.
For example, to cover $4,000 for year end holiday, we can open a non-monthly savings account to put $334 a month in the account. This amount could easily be drawn from what's left over in other accounts after monthly bills are paid.
According to Practical Money Skills, financial planners recommend to spend no more than 1.5% of our annual income on holiday spending. But if you plan to spend more, you may need to add the savings from other budget areas.