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In 2016, consumers took on over a $1,000 of holiday debt on average. And nearly half said they would be paying off their debt for four months or more.
When you don’t save for Christmas throughout the year, it plays havoc on your budget in November and December. You have to come up with the money to buy all your gifts but still pay for all your other bills and expenses. And, if you go into debt to pay for Christmas, you’ll be paying for it for months to come.
Let me show you how you can pay for Christmas gifts without going into debt or wrecking havoc on your budget.
Step 1 - Make a list (and check it twice)
The first step in saving for Christmas is to figure out how much you need to save. To do that, you need to create a list of who you plan to buy for. Besides family members and friends, don’t forget about coworkers and service providers (such as your mail carrier and hair stylist).
Then, for each person, figure out how much you want to spend.
Step 2 - Determine how much to set aside each month
Now that you have your list, you need to determine how much you’ll need to set aside each month to have enough money before Christmas.
First, add up how much you want to spend on everyone. Then, divide the total by the number of months left until Christmas. (If you plan to buy most of your gifts in November, then divide the total by the number of months left until November.) The resulting number will tell you how much you need to save each month.
If you are paid weekly, divide the monthly amount by 4 and set that amount aside each week. If you are paid biweekly or twice a month, divide the monthly amount by 2 and set that amount aside each pay period.
Step 3 - Create a sinking fund for your Christmas gift savings
A sinking fund is a fund where you set aside money each month so that you’ll have enough money saved to cover an expense. Saving for Christmas gifts is a perfect example of a sinking fund.
- Related Post: How to Utilize Sinking Funds to Improve Your Budget
By setting aside a little each month, you’ll feel less of a burden as Christmas time. Now, instead of having to come up with all your money in November and December, you’ll be saving for it over the course of the year.
For example, let’s say you plan to spend $600 for Christmas. If you waited until November to start saving for Christmas, you’d have to come up with the whole amount between November and December. This is on top of paying for all your other bills and expenses. By using this method, you’re more likely to take on debt.
But, if you started saving in March, you’d have 10 months to save. So, you’d set aside $60 each month. Much easier to incorporate into your monthly budget!
Also, by starting to save earlier in the year, you can buy gifts throughout the year as you see things on sale.
Step 4 - Keep track of your savings and spending
The easiest way to keep track of how much you’re saving for Christmas gifts is to put the money into a separate savings account. I highly recommend putting your money into a Capital One 360 savings account. Capital One 360 allows you to open up to 25 accounts, there aren’t any fees or minimum balance requirements, and there interest rate is higher than traditional banks.
Once you start spending money, you need to keep track of how much you spend on each person so that you don’t overspend. On the simple side, you can use paper or a spreadsheet.
Or you can use software (like YNAB) to keep track of your spending. For example, you can create separate categories for each person you will buy gifts for. Each month, when you deposit money into your savings account, you will allocate that money to each person’s category.
Then, when you buy a gift for someone, you’ll assign that spending to the correct person’s category. YNAB will then subtract what you spent from the amount saved for that person. So you’ll always know how much you have left to spend on each person.
YNAB also has an app for both the iPhone and Android phones. So, when you’re out shopping, you can easily see how much money you have left to spend on each person. This is a great feature because you can make informed decisions that will keep you from overspending.
Ways to Save on Your Christmas Spending
To help keep your from overspending, here are ways you can save on Christmas spending:
- Use Ebates to earn cashback on purchases and to save by finding coupon codes
- Buy gift wrapping items and cards at the dollar store
- Use paper bags as wrapping paper and let your kids decorate them
- Shop throughout the year when things are on sale (often at better sales than around Christmas)
- Use Amazon Prime for free two-day shipping
- Limit the number of gifts you have to buy through doing a Secret Santa or White Elephant gift exchange
- Buy only for kids
- Use Google Shopping to search for the best price on an item
- Give edible or handmade gifts
- Use the Honey extension, which automatically applies coupon codes and looks for better prices
- Don’t be afraid of giving gift cards or money
- Ask for a list of gift ideas so you don’t waste money on something they don’t want
By saving a little each month for Christmas, you’ll find that Christmas shopping and the Christmas season are a lot more enjoyable and stress free. No more worrying about how you’re going to pay for everything. Instead, you’ll have peace of mind knowing you have the money to buy gifts for everyone you love.
Will you try to save for Christmas throughout the year?