How to Spend Money Responsibly This Holiday Season

Don’t let what you “must” spend determine what you actually spend. Doing so will pretty much guarantee you overshoot your budget.

Wouldn’t it be great if holiday shopping budgets had the same magic as Santa’s sleigh and people wouldn’t have to worry about overspending? If one man and nine reindeer can travel the entire world in a single night without literally bursting into flames, why couldn’t we all spend way more than we had planned to without racking up a ton of credit card debt?

Oh well. Until humankind discovers literal magic, we’ll have to keep abiding by the laws of both physics and economics. That means keeping your holiday spending in check, lest you want to be paying for it (again, literally) for months and months afterwards—something that’s a little easier said than done.

Holiday overspending is common.

“Even if you’re generally careful with your spending most of the year, it is dangerously easy to fall into the trap of overspending during the holidays,” said Carla Dearing, CEO of online financial wellness service Sum180 (@mysum180).

But just how common is it? Well, Dearing pointed to findings from Holidays, Money, and Family, a survey by T. Rowe Price, that showcase how many families “fall into no-holds-barred spending during the holidays.”

According to that survey, the average amount spent on children ages 8–14 was $422, with 53 percent of parents agreeing with the statement “I try to get everything on my kids’ lists, no matter how much it costs.”

Additionally 34 percent of parents who responded said they spent $500 or more on their children ages 8-14, while 58 percent of parents agreed with the statement “I never stick to my holiday spending budget,” and one in four parents admitted to taking money from their retirement accounts to cover their holiday spending.

“It’s easy to get so caught up in the madness of holiday gift-buying that spending control is lost—but it’s not inevitable,” said Dearing, who offered some holiday spending guidelines that people should follow in order to avoid “post-holiday buyer’s remorse”—not to mention a post-holiday pile of credit card debt.

Figure out how much you actually afford.

Dearing noted that the T. Rowe Price survey points to a problem with how people approach their holiday spending. They let the pressure to spend what they “must” drive their decision-making, instead of following what they can actually afford.

To this end, Dearing recommended that holiday spenders take a long, hard look at their finances and determine a “realistic, firm number” that they can keep in mind while planning out their seasonal shopping to help curb their urge to overspend.

But how does one figure out what this number should be? Dearing had some advice:

“Here’s a rule of thumb: Most people should allocate no more than 1.5 percent of their income for holiday expenses. So if you make $50,000 a year, this means your holiday budget is $750.

“Keep in mind that this figure covers everything, not just gifts. Big-ticket items such as travel expenses should fit within this budget and smaller expenses like holiday decorating or special dinners out should be factored in as well.”

Dearing noted that, while this overall spending number will be helpful, it will also be something that’s easy to forget when faced with the pressures of a child’s wish list. The rest of her advice addresses how best you can keep yourself on track.

Break it all down.

When you’re building a budget, you don’t just treat your income as one big pile of money. You break it down into separate line items: for groceries, for household cleaning supplies, for entertainment, etc. Not only does this give you a picture of how you’re spending your money, but it also lets you prioritize the things that are most important you.

Dearing recommends doing the same thing for your holiday spending. Once you have the total amount you can spend, she says that you should work backward to determine how much you’re going to spend on each individual person—while keeping in mind additional holiday expenses like airfare.

“And if you think this takes the ‘spirit’ out of things, remember that sick feeling you’ll have in late December when you realize that you’ve spent too much,” she advised.

According to Dearing, it’s important that you avoid letting worries of “disappointing” your family force you into spending more than you can afford. She even recommends being honest and sharing your thinking with them beforehand. That way, you can gain their support!

Start early, craft often.

Spreading out your holiday spending throughout the year is a fantastic way to avoid racking up huge credit card bills, but Dearing recommends it for another reason as well: Starting early will let you swap time for money by making your own homemade gifts. The more time you give yourself to make them, the better those gifts will be!

“One of my own favorite gifts was one I received last season: a fabulous bottle of eggnog homemade with a local whiskey and the recipe on a cute card attached,” said Dearing. “Lots of love went into that, and the eggnog absolutely beat the heck out of what is available at retail.”

Lastly, Dearing points out that many folks will tap their emergency fund in order to pay for holiday spending. This is fine, she says, so long as you have a plan to build it right back up again once the holidays are through.

And if you don’t have an emergency fund, consider giving yourself the holiday gift of seed money! The ideal emergency fund is six months worth of living expenses (which is a lot, we know), but a few hundred dollars to get you started will be a gift that keeps on giving!

Holiday spending has year-round consequences.

Dearing had a final thought to offer:

“Holiday spending doesn’t happen in a vacuum. Yes, this is a special time of year. And it’s tempting to suspend our usual rules and think that—just like calories on vacation—holiday expenses don’t matter. But the truth is they do. The decisions you make this season will have an impact on your overall financial picture.”

We couldn’t agree more. Don’t let the spirit of the holiday season carry you so far away that it ends up plopping you down on top of a pile of high-interest credit card debt. With a little bit of planning and discipline, you can celebrate the holidays without having to worry about a January hangover. Doesn’t that sound so much better? 

But so does fiscal responsibility. 

Here on the OppLoans Financial Sense blog, we often write about the steps people can take to avoid relying on bad credit loans and no credit check loans during times of financial emergency—steps like making sure you don’t let holiday shopping bury you in credit card debt.

But at the end of the day, it pretty much comes down to one thing: If you’re serious about steering clear of predatory payday loans, cash advances, and title loans, it’s going to mean managing your money responsibly.

To learn more about good money management, check out these related posts from OppLoans:

What are your best strategies for responsible holiday spending? We want to hear from you! You can find us on Facebook and Twitter.

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Carla Dearing is CEO of Sum180 (@mysum180), an online financial wellness service designed to be simple and affordable. She is also CEO and Managing Director of IMC, a marketing services agency. Previously, Carla held senior executive positions with at the University of Louisville, Community Foundations of America and Investors Capital Services. Earlier, she worked at Morgan Stanley and American National Bank & Trust Company. She holds an MBA from The University of Chicago Booth School of Business and a BA from the University of Michigan, Phi Beta Kappa.

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