Treat yourself to a debt-free holiday season this year

“Set a budget for the holidays.”

You’ve probably heard this financial advice a thousand times. In my experience, however, what really trips people up is not having a strategy in advance for how to spend that budgeted amount.

In keeping with the spirit, let’s go over some easy steps that can help you evaluate how to think about and spend your money, so you can treat yourself to a debt-free holiday season.

Use the ‘hourly wage’ tool

Have you ever thought about how much you — or someone near and dear in your household — have to work in order to afford to buy something? 

If you’re like most people, this has likely been a passing thought. But it’s certainly not something to focus on regularly. Well, if you’d like to give yourself the gift of financial stability after the holidays, it's time to shake things up. 

Most full-time employees spend about 2,000 hours a year on work-related activities. This estimate is based on 40 hours per week and 50 weeks per year.

Now, let’s say your annual income is $60,000. After federal, state and local taxes, which vary widely across the country, that means you’re bringing home about $48,000 annually.

And if it takes you 2,000 hours to earn that $48,000, you’re looking at an after-tax hourly take home of $24 per hour. 

So, when you come across an amazing set of whiz-bang gifts for the kids that adds up to $240, you can do the math: Is it worth 10 hours of your hard-earned work days?

Only you can decide, but now you have a truly meaningful ruler to help put things in perspective and help you decide.

Set a gifting game plan

If you’re trying to reach a goal, it helps to define the steps to help you get there.

In this case, your goal is to have a super fun holiday season without going into credit card debt — or deeper into credit card debt, if you’re already there. Creating a personalized gifting game plan is a great way to set yourself up for success.

Start by choosing the total dollar amount you’d like to spend for all purchases during the holiday season. Ideally, you’d be able to pay the entire amount in full when credit card bills come in.

Once you have that magic number, you’ll want to choose a strategy. This strategy is about understanding how many people you're buying gifts for. And yes, deciding who's on your gift list can be a delicate dance.

In general, there are two basic strategies to choose from: You can go narrow and deep, or you can go wide and shallow.

Narrow and deep means selecting a handful of people (or charitable causes, if you prefer) to give gifts to and going all-out for them. Wide and shallow means selecting a large number of recipients and giving gifts that are more affordable.

If you have a few close friends or a relatively small family, the narrow and deep strategy might be a better fit for you. Whereas, if you have a large family or expansive circle of friends and colleagues, you’d probably be better off with the wide and shallow strategy.

Both are good options, but avoid going wide and deep. That’s how you get into trouble with overspending — buying gifts for too many people and spending more than what you can afford on them! The key to a debt-free holiday season is sticking to your strategy.

Bonus tip

If you want to get fancy, you can divide your total budgeted amount into two pools and choose a different strategy for each pool. You decide how much money to allocate into each pool.

My recommendation: You may want to go follow the narrow and deep strategy with family members or charities that are near and dear to your heart, while wide and shallow might be a better strategy for colleagues and friends.