Planning and preparation: 3 keys to smart holiday spending

A lot of us seem to have a love-hate relationship with the holiday season.

It’s the time of year to spend time with loved ones and ring in the new year, but it can also cost a great deal of money. Buying presents, cooking meals (or delicious cookies) and decorating ... all these activities can cost a pretty penny. 

Sure, it’s easy to swipe it on your credit card. But come January, when it’s time to pay that money back, it may not be as easy to come up with the cash. So, why wait until later to grab ahold of your finances and take control of your holiday spending.

Planning for the holidays doesn’t have to be a major chore. If you take the time to prepare for the increased expenses and are proactive about managing your money, you can be more present during the holidays and won’t have to worry much about what your credit card statements look like once the season is over.

1. Create a holiday budget — now

Seems obvious, right? Sadly, many people don’t prioritize budgeting for their holiday spending and push it off until the very last minute. 

Creating a budget simply means understanding how much you can afford to spend. The season of giving often means you’re spending more than normal, which makes budgeting all the more important. And the sooner you create a budget, the more time you have to start stashing money to cover your costs.

Study your spending habits

To create a budget for yourself, take a look at your past holiday spending patterns to figure out the total amount of money you need to cover all your holiday expenses. (Credit card statements are a great place to start.) Make sure to include any important details, like the number of people you’d like to give gifts.

Understand your timeline

Once you have your total amount, decide when you’ll start your holiday spending. Then, use your total amount and the number of days you have to figure out how much money you need to save every day. If it’s $5 or $10, try cutting costs for a few weeks. If it’s significantly more than that, you may need to think about other ways to generate cash.

Automate your savings

And if you can, automate your savings. You can ask your bank to help you deposit a certain amount out of each paycheck (or as often as you want) or you can use an app to move the money around for you. Either way, there are advantages to be had when you commit to saving money and don’t have to worry about it every day.

2. Swipe credit cards with a purpose

Just because you many need to use credit cards, doesn’t mean you’re doing anything wrong. Whether you’re swiping to earn rewards or to supplement income, credit cards are a useful tool when it comes to holiday spending — so long as you use them responsibly.

Cover all minimum payments

If you plan to put holiday purchases on your credit cards, make sure you’re able to cover your minimum payment every month. Your minimum payment is typically a percentage of your monthly balance, usually somewhere between 1% and 3% of your balance.

Making the minimum payment on your credit card is crucial. If you don’t think you can cover the monthly minimum, you may want to reconsider some purchases. However, financial experts strongly recommend paying more than the minimum whenever possible.

Even a few extra dollars added to your payment will save you money in the long run.

Know the details of your cards

And if you’re carrying a balance on multiple cards, it’s important to be aware of the details of each card, like the APR, due date and total balance. This information can help you decide which cards to pay first.

For example, if you have two cards — say, one with a 17% APR and the other with a 24% APR — prioritizing balance with the higher APR would save you money on interest. (This strategy is known as the debt avalanche method.)

Your credit card due dates are also important. Making on-time payments for each card will save you money on possible late fees, but paying them in order of due date can buy you some time to generate more money.

3. Understand your purchase priorities

It’s easy to get caught up in buying the latest gadgets and toys for your children, or purchasing that expensive piece of jewelry to show your significant other how much you care. (Trust me, I’ve been there!) 

But if there’s a major lesson I’ve learned, it’s that the thought that matters just as much, and so does spending time with your loved ones. For example, instead of buying a bunch of toys for my son last year, my husband and I opted to buy our family a membership pass to the zoo. We now go every other weekend — and beyond the fun, the perk is that it’s saved us money on gifts to one another as a family.

Stick to your holiday budget

Take a look at your priorities and rethink giving into peer pressure. Do you really need to attend every holiday party? Do you need to give gifts to everyone you know, like that neighbor you rarely talk to?

This goes back to creating a budget, but stay firm on who you purchase gifts for. Last-minute changes to your planning and preparation can seriously hurt your wallet.

At the end of the day, nobody will fault you for wanting to save a bit of money during the holidays. People may not remember the gift you got them a few years ago, but they will probably remember how much fun they had at the holiday potluck party you hosted.