Hard Times Warrant a Second Look At Holiday Budget
For most gift givers, holiday shopping is a lot more meaningful than just a trip to the mall. It's part of a tradition that sets the tone for the entire season—showing friends and family that they care, finding joy in the happiness of others.
With the economy in a tailspin and unemployment on the rise, however, many families this year are putting a limit on how much of their hard-earned money they are willing to drop on iPods and designer jeans.
Should you spend a percentage of your income? Buy for children based on their age? What do you do if your friend gives you box seat tickets to the orchestra?
Indeed, holiday spending can get out of hand in a hurry, forcing many families to start the New Year mired in credit card debt.
“I think because we are such a consumer-oriented society that if we don’t spend a certain amount there’s a lot of guilt attached with that,” says Kristine McKinley, a certified financial planner with Beacon Financial Advisors in Lee’s Summit, Mo. “But if you haven’t maxed out your 401(k) retirement plan or saved for an emergency fund, you shouldn’t be spending $1,000 on gifts for your kids.”
How do you stack up?
For a little perspective, it may help to determine where you rank as a holiday shopper relative to your peers.
The National Retail Federation’s 2008 Holiday Consumer Spending Survey found the average consumer this year will spend $832.36 on holiday-related purchases—an increase of less than 2 percent from last year.
As usual, gift giving will be the biggest component of shoppers’ budgets, with the average person expected to drop $466 on gifts for family, $95 on friends, $27 on co-workers, and $44 on gifts for those who fall in the “other” category. Those are just averages, of course.
Many consumers spend far less—or far more—during Christmas, Hanukkah and Kwanzaa, which doesn’t mean they’re wrong, says McKinley.
“It’s based on your own unique situation,” she says. “If you’ve got your [financial house in order] I don’t see why you should place a limit to how much you spend.”
Don't Go Into Debt
That said, there are some financial guidelines that can help keep your spending in check,
regardless of your income.
“In years past we told people not to spend more for the holidays than they could pay off within 90 days, but times are harder this year so I’d recommend spending no more than you can pay off in 30 days,” says Paul Richard, executive director of the Institute of Consumer Financial Education in San Diego. “If you’ve lost your regular income, keep it on a cash basis.”
That’s good advice says Cary Carbonaro, a certified financial planner with Family Financial Research in Clermont, Fla.
“Don’t go into debt,” she says.
Those with job stability and disposable income to spare might also consider opening a holiday savings account, into which they can contribute a fixed percentage of their monthly income.
“If your financial situation is stable you might consider contributing 1.5 percent of your gross income into that holiday account,” says Nancy Porter, a professor and family resource management specialist for Clemson University.
In other words, if your income were $80,000 last year, you would have accumulated $1,200 for your total holiday budget.
Write It Down
The most effective trick to keeping your spending in check is to decide—before you hit the mall—is make a budget.