| November 26, 2009

Tips for stretching your holiday budget

Savvy shoppers are expected to do comparison shopping online this year. According to a recent study conducted by BIGresearch for the National Retail Federation, there are a lot of smart shoppers out there.

The study says 44.2 percent of consumers will go online to shop at some point during this holiday shopping season, about the same as in 2007. On average, consumers will make one third — 33.6 percent — of their holiday purchases online, up from 30.2 percent last year.

One hopes those shoppers will comparison shop for better prices — instead of spending too much by clicking “Charge my card” without thinking through their purchases.

Maximize your spending power:

  1. Make a spending plan
  2. Know your limits
  3. Track your spending
  4. Shop with a list
  5. Shop early
  6. Be an educated consumer
  7. Load up your wallet with cash
  8. Use credit judiciously
  9. Beware of sales pitches

Perhaps a sign of poor economic times, each shopper is expected to spend $832.36 on holiday merchandise, a paltry 1.9 percent increase over the $816.69 spent last year on average.

Holiday temptations

The holiday season is an all-out assault on your senses. The music, decorations, lights and the delicious seasonal smells assail your sensibilities on every street and in every store. The pace is frantic, the mood is manic, and the atmosphere is, well, different.

The holidays are so set apart from the norm that people are tempted to break out of their norm — for just the season.

“It’s seduction,” says Ruth Hayden, a financial educator and author of “Your Money Life: The ‘Make-It-Work’ Workbook.”

“Consumers are seduced into buying. To be seduced means that you’re crossing boundaries that you’ve set. You’re tempted to buy because you want to belong. You”re tempted to buy because you want to create love.”

And that’s where it gets dangerous — financially speaking.

We convince ourselves that breaking from our budget and using our credit cards a little more freely just this one time is all right. Come January, we’ll get caught up and back on track.

Let family traditions decide your spending

When deciding what to buy and what to do, first consider your family’s favorite traditions and holiday memories. What truly brings a smile to your face? What is the one thing you’d most like to do this holiday? Is there something new you’d like to try?

If you don’t have the cash in your pocket, you shouldn’t be buying. You can’t afford it. Next month, when the bills are coming in, chances are you’re not going to be in better shape.

Here are some tips to help you wrap up your holiday spending without overspending.

1. Make a spending plan

Start with a realistic idea of how much you can spend on all your holiday purchases. Make a list of everything you usually buy, from the gifts to food to entertainment to travel expenses, and tally the costs.

“If you don’t budget and set a specific dollar limit, then your spending grows and grows and grows. In January you’ll be horrified by how much you”ve spent,” says Mari Adam, a Certified Financial Planner in Boca Raton, Fla. “And, don’t get locked into the thought that how much you spend measures how good of a person you are.”

2. Know your limits

Not many can afford to shop carte blanche, so don’t try! Make a list of gift recipients and decide how much you want to spend on each person. If you’re unable to spend as much on gifts this year, prioritize for whom you really want to buy gifts. Then communicate your plans to family and friends, says Adam. “If you tell them you won’t be exchanging gifts this year, then you won’t feel embarrassed if they purchase you a gift.” You want to be able to pay off your holiday expenses within three months after the holidays, four at the most.

3. Track your spending

You’ve made a spending plan — great! But if you don’t keep track of all your purchases and make sure you’re staying within your budget, you’ve wasted your time. Write down everything you spend on holiday clothing, cards, postage, wrapping paper and decorations. Don’t forget that these holiday expenses add up and need to be tracked on your budget.

4. Shop with a list

Know what you want to buy, and go to the store with a list. You can zip through the stores faster and are more apt to avoid impulse buying. When you have finished shopping, stop.

5. Shop early

The best window for holiday shopping is between Oct. 1 and Dec. Don’t wait until the last minute. Give yourself time to compare prices and find the best deals. An all-out shopping spree leaves you exhausted from shopping, tempting you to buy the next thing you see regardless of cost. Last-minute shoppers are unlikely to save money.

6. Be an educated consumer

Comparison-shopping stretches your holiday funds further. Fight the urge to get your shopping over quickly, recommends the Consumer Federation of America and the Credit Union National Association. Instead, take some extra time to find the best deal before heading off to the stores by scouring catalogs, sales advertisements and the Internet.

Easier said than done. Most people are frazzled with their jobs and busy holiday schedule. They often work right up until Christmas, so their holiday shopping is done last minute, says Adam.

And think twice before you buy. Ask yourself if the gift will be appropriate for the recipient and within your price range. If not, don”t buy the gift, particularly if you will have to charge the purchase.

7. Load up your wallet with cash

Leave your credit cards at home. Spend cash. This will force you to budget and make overspending more obvious. According to statistics, people spend up to a third more when paying with credit instead of cash. There is no emotional attachment to plastic like there is to cash.

But, if you must use plastic, Myvesta.org suggests that you deduct all your purchases in your checkbook register. That way, when the bill arrives, the money will be in your checking account to pay the bill in full.

8. Use credit judiciously

Shop with no more than two credit cards — preferably low-interest rate credit cards, not the expensive department store cards. The more cards you use, the harder it is to track spending. Use one with a zero balance for purchases you will pay off in full. Use the other, low-interest rate credit card for purchases you plan to pay off over the next few months, suggests Myvesta.org.

9. Beware of sales pitches

Don’t shop under the influence of holiday hype. Retailers work hard to entice you to buy, buy and buy. If you’re not careful, you’ll spend more than you planned. Don’t fall for credit card offers to “skip a payment.” You’ll just pay more in interest next month. Watch out for the “buy now and pay later” offers that encourage you to spend money you don’t have. And, bypass applying for the department store credit card to get a one-time discount.

“Downsize holiday spending, not your holiday joy,” says Adam. “Limit the size of your Christmas in terms of gifts, and make it big on meaning — from family, friends, traditions to creating memories.”

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