​​​​Budget for 2021 holidays, avoid future debt

COVID-19 and an uncertain economy might have caused some families to scale back their traditional holiday activities in 2020. However, many families still traveled, held gatherings and parties and purchased gifts. This can lead to overspending, create large amounts of credit card debt and put a strain on family finances the following year. If you found yourself over your head in debt after this holiday season, there are steps you can take to prevent it from reoccurring the next holiday.

Start Saving ASAP

Resolve to set aside funds for the next holiday now, right after the previous celebration. If you can’t, start saving as soon as you can in the new year. The more months you devote to saving, the more money you will have to draw from when you start holiday shopping…and the less debt you’ll create.

Create a Realistic Budget

Do this once the new year begins. First, determine your total household income. Don’t include “windfall income” yet — e.g., potential bonuses or income tax refunds — since those funds are not guaranteed.

Next, calculate ALL monthly and periodic expenses, including food, housing costs, insurance, child care, car repairs and debt payments. Be sure to include emergency savings as one of these expenses; these funds are crucial to avoid debt at other times during the year.

Once you determine your total expenses, figure out how much you can put toward your holiday fund. Multiply that by the number of months you have for building your savings. For example, if you can save $75 each month after expenses and have an entire 12 months to save, you will have $900 by the time you start shopping in December.

Determine All Your Holiday Expenses

Holiday spending isn’t only on gifts, of course. Additional costs typically include food for gatherings and parties, decorations, and travel. Your costs will depend on your projected plans for the next holiday. Especially if the pandemic is under control and your financial situation improves, you might plan to spend more this year on travel, get-togethers, and holiday lights and ornaments.

From the amount you plan to put in your holiday savings fund, determine how much of that you want to spend on gifts and how much you want to spend on the additional holiday costs. Then figure out how many people you plan to purchase gifts for. Divide the amount you spend on gifts by the number of people you shop for. For example, if you have five people on your shopping list, plan to save $900, and decide to spend $450 of that on gifts, you can spend $90 per person.

Decide Where to Deposit Your Holiday Funds

Set up a separate savings account dedicated to holiday spending only, separate from your emergency savings fund. Many banks/credit unions allow their customers to open multiple savings accounts.

Make Adjustments as Needed

• Carefully monitor your spending throughout the year, and treat your holiday savings like a monthly bill. If you have less than 12 months to save, you’ll hav   e a smaller gift-giving fund and less to spend. If that is the case: 1) cut spending in other areas of your overall budget so you can set aside more money; 2) reduce the overall amount for your holiday spending; or 3) find ways to earn extra cash (a part-time job, babysitting, shoveling, side gig, etc.).
• Add in any windfall income that comes your way during the year. Put that extra cash toward your annual holiday savings goal(s). You can then decide to increase the amount you spend on gifts and additional costs. Or, if you do happen to go into debt over the holidays, the windfall can help pay off the debt quickly.
• Throughout the year, you might find great deals for items on your family member’s wish list. If you decide to buy items well in advance of the holidays, subtract the amount you spend from the savings you have available to avoid overspending during the rest of the holiday season.

Credit cards might lull us into thinking that we can have a happy holiday by overspending on gifts, parties and decorations. However, paying off the debt and interest charges after the celebrations are done is a daunting challenge. With an effective plan and a solid budget, you reduce the risk of racking up excess credit card debt, saving you from extra debt payments and the stress that goes with it.

If you are still paying off holiday or other debt and feel like you’re going nowhere fast, LSS Financial Counseling can help. Our experienced financial counselors will work with you to create a realistic plan to pay off debt faster and save more money. Call us today at 888.577.2227 to schedule your free, confidential session over the phone or in-person, or complete your online session at your convenience.

Author Ray McCoy is a Certified Financial Counselor with LSS Financial Counseling.