Written by Linda Brewton
It’s the end of the year, and you know what that means. No, I’m not talking about celebrations, family gatherings or caroling in the snow. For many of us, the holiday season is a time when we plunge head first into the spirit of giving, only to set ourselves up for a financial migraine in January when good cheer’s step-children come knocking on our doors in the form of credit card bills.
Just as the most dedicated dieter often gives in to the call of calorie-laden cookies, eggnog and holiday pies this time of year, many otherwise financially rational people are often seduced by the season into spending more than they can afford. Later, when all that remains of the spending spree are a stray strand of tinsel and an errant hook from some tree ornament, they spend the rest of the year paying down debt, only to run up bills again at yearend, thus renewing the cycle.
However, it is possible to enjoy the holidays without sinking into debt. By following a few simple steps, you can have a stress free holiday followed by an even more stress free New Year.
The best way to not overspend is to plan your spending in advance, write down how much and on what you will spend, and stick to your plan.
Determine how much you can afford to spend
Add up all your income and all your expenses for the month. Subtract expenses from income, and the result is discretionary income. If you have any type of debt at all, I recommend taking half of your discretionary funds, and set them aside to pay down debt. The other half is what you have to work with for the holidays.
Determine what, for whom and how much to spend
On a sheet of paper, draw four columns. In the first column list the person or event for which you would like to purchase an item. In the second column list the item to be purchased. In the third column list the price of that item. In the fourth column list the cumulative total of all prices on your list. For instance, at the end of the first row, your cumulative total is simply the price of the first item on your list. In the second row, add the cumulative total from the first row to the price of the second item on your list. In the third row, add the cumulative total from the second row to the cost of the third item on your list, and so forth.
Know when to stop
Sort the list in order of importance, with the most important item at the top. Looking at the cumulative totals in the fourth column, find the amount that comes closest to your budget without going over. Draw a line under that row. All the items above the line are what you can afford to purchase. Everything else on your list will have to put off until a later date when you can afford them. Alternatively, revise the list to include less expensive items so that you can afford to give to more people or do more things.
Make spending real
After determining what you will be spending, withdraw that amount of money in cash. One of the best ways to not over-spend, is to avoid using credit cards. By using cash, you will be able to physically see and feel how much you are spending and thus more likely to stop yourself from overindulging or buying unbudgeted items.
About the author
Linda Brewton is a 20-year veteran of the capital markets industry and published writer who has provided financial advice and consultation to women in all stages of life, as well as to multi-billion-dollar institutions. Her areas of expertise include portfolio management, financial services and trust administration. Ms. Brewton is a Phi Beta Kappa graduate of San Diego State University where she earned an MBA in Finance and a BA in English. Her book, “The Myth of the White Knight,” empowers women by showing them how to take control of their finances to create the lifestyle of their choosing.