If the holiday season fills you with dread because you know that you will overspend, there is hope. Whether it is too late to cut back on spending now or not, you can recover in the new year. All you need is a plan.
Why Do We Overspend During the Holiday Season?
There are a variety of reasons why we overspend during the holiday season. Whether we have a big family or a small family, people of all ages and backgrounds will spend more this season than any other.
We overspend during the holidays because we want to show our family and friends how much we love them. In a consumer culture, that means buying expensive gifts. Unfortunately, many of us do not have the money for expensive gifts.
We overspend for the holidays to host holiday parties or give out cookies to everyone we know. People spend more on food during the holidays. Whether that money is spent on food at home or dining out, the outcome is the same.
We get invited to parties and feel obligated to accept the invitation, bring a food dish, and even a present for the host. We buy fancy champagne or wine to impress others. We want to make sure we bring enough for everyone to get a taste, so we buy more food or make more food than is necessary.
All in all, people spend hundreds, and sometimes thousands, of dollars every December. The spending starts with Black Friday when we often buy more than we need just because it is on sale and doesn’t end until after the New Year.
How Do You Get Back on Track?
The good news is that it is possible to recover from holiday overspending. So, get ready to plan and put it into action.
The first step is to acknowledge that you spent a lot of money and that some or all of it was on a credit card. The next step is to make a budget. Once you have your budget, you can start paying down your debt.
The first step to solving any problem is recognizing that the problem exists. You can’t solve something you refuse to acknowledge. So, take a deep breath and look, really look, at how much you spent this past holiday season.
Did you spend $500, $1000, or more? Where did you spend it? What did you spend it on? How much credit card debt did you accumulate?
Once you recognize and acknowledge the problem, you can solve it with a few quick and easy steps.
Make a Budget
Now that you have recognized and acknowledged your overspending, it is time to make a budget. Start by looking at your expenses each month.
- How much do you spend on rent or a mortgage?
- How much do you spend on utilities like electricity, gas, and water?
- How much do you spend on food?
- How much do you spend on eating out?
- How much money do you spend on clothing?
- How much do you spend each month?
- How much do you spend on things you need to survive?
- Do you spend on things you want but could live without?
- Where can you cut your spending?
Asking yourself these questions can help lead you to your budget. Don’t cut everything from the fun and wants category. Just try to cut what you can.
It is essential to have some fun or you won’t stick to your budget. There are budgeting apps like Mint that can assist you in building a budget.
Make a Repayment Plan for Debt
Now that you know how much debt you have by looking at your holiday spending and how much money you can use each month to pay down that debt, it is time for a plan. First, paying your debt down as fast as possible is essential, especially on a high-interest credit card.
Use most of the money you save from budgeting to pay down this debt. If you can afford it, put a little extra aside each month to save for the next holiday season. However, if you must choose between saving for next year and paying off this past year, pay off your debt first. Otherwise, it will hang over you for a long time.
Start Planning for Next Year
The final step to recovering financially from overspending is to look ahead. This is just as important as fixing the mistakes of the past. The overspending hangover is not fun, so why keep doing it year after year?
Once you have paid off your debt from this past holiday season, start planning how you will pay for presents, food, and fun during the coming holiday season. First, create a savings account just for you to use on holiday spending and gift-giving.
Create a Holiday Savings or Debit Account
The first step is to do it, even if you are still paying down your debt. Start by opening a savings account with your preferred bank or credit union. Call this account “Gifts and the Holiday Season” or anything else that reminds you that the money in that account is only meant for specific things.
You can restrict access to this account to the holiday season, from Halloween to New Year’s. You can also make it a flexible savings account for all holidays or gift-giving occasions. Think of this second one as a rainy-day fund just for gifts and celebrations.
Before setting up your account, decide whether you want a savings account or a debit account. The money in a savings account is safe because it cannot be withdrawn without going to an ATM or the bank. With a debit account, you can use your debit card to purchase things using the money in the account.
A debit card is the easiest way to get access to your money and use it for spending. However, this method is not a good choice if you think you might spend the money on other things instead of saving it. On the other hand, a savings account keeps your money out of reach when it comes to impulse buys because it is harder to get at the money – read more from The Points Guy.
Figure Out How Much You Will Need
To make saving for gifts and the holiday season work, you need to think about how much you will need. The best way to do this is to look at how much you have spent in the last few years.
If you only know how much you spent this past holiday season, use that amount, and add a few hundred dollars to be safe. However, if you have four or more years’ worth of holiday expenses to look at, make it your goal to save as much as possible towards the most expensive year.
It is always a good idea to save more than you think you need. Consider that any leftover money gets rolled over into the next year, and the next. This can go on until you have an excellent holiday spending account.
If you can, start saving immediately for the next holiday season. However, if you need to pay down your debt from this holiday season, do that first. Then, once your debt is gone, start saving all that money each month.
If your plan for saving money only requires you to save $200 a month, but you have $400 available, you can either save all that money or save your monthly goal amount. Use the extra money for something else.
Don’t let that shadow of holiday debt make you regret the gifts you gave and the fun you had. Pay down that debt. Pay it off, so it no longer has any hold over you. Then, when you’ve done that, make sure it never happens again by saving in advance of the holiday season.
Image by M Agency via Shutterstock.com.
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