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Develop Spending Plan For Holidays

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By Jean Chatzky

Published: November 18, 2007

Americans expect to spend about $900 on holiday gifts this season, according to a Gallup poll. One-third of adults plan to spend more than $1,000. If those numbers hold up, this will be biggest spending holiday season in a decade.

Many Americans go into debt to foot the bills. About 30 percent of people will pay them off within three months, but another 25 percent will take 12 months.

If you put about $900 on a credit card, the interest rate will determine how much it costs you to carry that debt for a year. At 6.9 percent, you'll pay $16 in interest in three months and $63 in 12 months. Compare that with a card that charges 24.9 percent. You'll fork over $56 in interest over three months and $226 if you carry the balance for a year.

And that's without late fees or over-limit charges.

So what do you do to help rein in the potential debt?

Set a budget. People hate the word budget. I prefer the term "spending plan." It puts the power back in your hands. Make a list of the people you need to buy for; next to each name, note how much you plan to spend on that person. Take taxes and shipping into account. Also, factor in things such as wrapping paper, holiday cards and that bottle of wine you take to each party. Add up the numbers, and that becomes your budget.

Is it reasonable? Look at the numbers, and decide whether they make sense based on the amount of cash you have available each month - the amount left after you pay fixed expenses (house, car, gas, child care, health care, groceries, etc.).

Spend less or earn more. To spend less, start cutting back a bit in advance on any variable expense you can. Cut one restaurant meal a week. Or one purchase at the video store. Or the makeup counter.

If you don't know where your own weaknesses are, look at your last three credit and debit card bills for clues. If you chose the earn more route, it means a few hours of overtime, a little moonlighting or selling assets you don't need to come up with the additional cash.

Trim the budget before you spend. If you have 15 people on your list, slash the amount you're going to spend on each of them by $10, and that will lower your total by $150. Consider chipping in with friends for a gift or opt for a gift exchange - with a spending limit. If your biggest expense is holiday cards, send e-cards. You can do it for free and save 41 cents per card in postage. Try to take down your total by 20 percent before you start shopping.

Shop early. Give yourself time to make rational decisions. When you shop under pressure, you make bad budgeting choices, inevitably buying things you're not happy with and spending more money than you would otherwise because you feel as if you have to do something now.

Also, avoid shipping at a high price; the cost can double with overnight mail.

Use noncash currencies as subsidies. You have gift cards sitting around? Frequent-flyer miles waiting to expire. Unused credits at stores. Use it to take a chunk out of your spending.

Keep good records of what you've spent. If you're like most people, you'll do some of your holiday spending in cash, some on plastic, some in stores and some online.

If you're going to stick to a spending plan, it's essential to keep track of how much money is going out. Use your original list to keep yourself honest. Tuck it in your wallet, and fill in the blanks each time you make a purchase.

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