Tip of the Day

TIP OF THE DAY

Early planning can keep holiday spending in check ; Set budget in season of giving
Source: Times-Picayune 12/05/2006

Question: I am having a difficult time juggling my finances during the holidays. What are some holiday budgeting tips?

Answer: As the holidays approach, many people think lavish spending comes with the season -- whether it be on travel, entertainment, or gifts for family and co-workers. It's easy to get caught up in the glitz and glitter, and to let emotions and expectations drive purchases. But a simple preseason game plan can help you manage the holiday hustle -- and avoid huge bills that could drain your savings later. You don't need to scrimp like Scrooge to celebrate in style, it's just a matter of a little advance planning.
-- Set a spending target. First, determine how much you want to spend overall this holiday season. Include all expenses, such as gifts, greeting cards, postage, decorations, entertainment and travel. Estimate what you spent last year, and decide whether you want to change the amount.
The key to staying in the drivers seat with holiday spending is figuring out how to meet this goal without dipping into long-term savings or going into debt. Think creatively and make some temporary trade-offs: Can you forgo a few restaurant dinners over the next couple months? Perhaps you can wait until next year for a major purchase, or you can postpone making an extra mortgage payment for now.
-- Make a list and check it twice. Write down the names of people on your gift list and specify a dollar amount next to each. Putting this information on paper will keep you focused and enable you to make trade-offs if needed.
Perhaps you want to buy an expensive gift for your parents -- then you can trim the amount spent on friends. Avoid impulse buying by researching gift ideas and prices online. You may decide later to shop at the mall, but with the help of the Internet, you will have a good estimate of costs and a helpful list of suitable gifts.
-- Share your strategy with others. You may want to tell friends and family about your gift-giving plan, without necessarily spoiling the surprise of each present. Santa may bring a few larger gifts for the kids this year instead of several smaller ones.
Or perhaps you can purchase a group gift -- such as a game or movie -- for your brother's family. Your plan may come as a relief to others, and they might revise their shopping as well.
-- Consider gifts with growth potential. Think about purchasing a starter IRA for young adults or an education savings plan for children. You can add to these gifts each year, and you determine the initial contribution amount based on your holiday plan. Your children or grandkids will appreciate that you initiated these savings tools for them. They offer potential benefit in years to come, and an early start provides the additional gift of compounding over time.
-- Make it personal. Look at your gift list and think creatively -- who might like a handwritten note and a framed photograph? Perhaps someone would be thrilled with an evening of babysitting or a tray of home-baked goods. Or donate to your friend's favorite charity, and send him a card that mentions your contribution -- you don't need to specify the amount.
-- Shop early. Most people wait until after Thanksgiving to start their holiday shopping, according to a National Retail Federation 2005 survey. And approximately 18 percent of men had not started holiday shopping by December 20, according to the same data.
Shopping early can help you avoid the last-minute pressure that can result in choosing a gift that is either marginally acceptable or above your price target. Before you hit the stores, make sure you have your list, and when you're finished, go home. Consider purchasing gift cards -- they are popular both to give and receive, according to the National Retail Federation.
Gift cards can keep you on your holiday spending plan -- you decide in advance how much each person will get, and at many stores, you choose how much to put on the card.
Check out the terms before you buy -- some cards lose value or expire over time.
-- Plan ahead for travel. If your holidays call for an out-of- town visit, try to plan in advance. Research the fares of competing airlines, or use a travel agent to compare prices. Look into travel Web sites and travel clubs.
If you have a great deal of flexibility in your schedule, consider fares that may become available closer to your departure date. If you are planning a major excursion, such as a holiday cruise, and you are financing the trip instead of paying up front, research the different sources of credit. A home equity loan, for example, may provide a lower interest rate than a credit card. Keep in mind, however, that failing to repay or make scheduled payments on a home equity loan could mean losing your home, so be sure to consider this option carefully.
. . . . . . .
John Gin is a certified financial planner in the New Orleans area office of a national financial services firm. Send questions to Money Watch, The Times-Picayune, 3800 Howard Ave., New Orleans, LA 70125.