© Copyright Christine Matthews and licensed for reuse under this Creative Commons Licence.
Christmas is just around the corner folks! For many this is a time of joy, where families come together to exchange gifts and enjoy one another’s company.
However, Christmas can also be a budget-buster. The average American household plans to spend just under $1000 this year on Christmas gifts, and few of us have enough discretionary monthly income to cover that. If you’re just now having the Christmas budget discussion, the reality is, it’s a bit late.
Many will use credit cards to finance the holiday cheer, some may turn to crime, and the Flanders will have an “Imagination Christmas” (Simpsons, anyone?), but once the tinsel settled, here is how to prepare for next Christmas.
Warning: Budgeting for Christmas is just like budgeting for anything else. This is going to be a general budgeting lecture, not just a Christmas post, so if the discussion of budgeting turns your stomach, beware.
Amortize the Expense
“Amortization” is one of our favorite terms in the mortgage industry. It simply means to take a single expense and break it up into increments, or payments. Amortize your projected 2017 Christmas expenses (let’s say, $1000) by figuring out your “monthly” Christmas expense; $1000 / 12 = $83. So, you’ll need to set aside $83/month in 2017 to pay for Christmas. Now, let’s work this into the rest of your budget.
Create a list of expenses
First, write down what your different expenses are and list them by category in order of importance: Mortgage/Rent, food, kids clothing, forecasted repair costs, auto-loans, student-loans, taxes, emergency savings, and any costs that are absolutely necessary. It’s helpful to see what your expenses in these categories were for the previous year, so that you know what to plan for.
Next, create a list of “less necessary costs” such as a planned vacation, optional upgrades on home and vehicles, Christmas(!), etc.
This can be a moment of reckoning for many of us. If you find that your expenses are outpacing your income, then it’s time to start trimming expenses or find a feasible way to increase your income, or both.
Automated Payments and “Buckets”
Budgeting is all about discipline, and one of the keys to successful budgeting is to do whatever is feasible to reduce temptation. Just as someone who is dieting would find it unwise to leave a jar of cookies on the counter, a budgeter needs to make sure spoken-for funds are “off limits”. This is best done with automated payments/transfers and “buckets”.
Automatic Payments/Transfers: For set monthly expenses (like your rent/mortgage, car payment, etc.), set up automatic payments and get the money out of your account as fast as possible. This will keep you from making late payments, but also keep you from thinking you have more discretionary income than you really do. Automate as much as you can!
Buckets: For your non-monthly expenses (like Christmas), have a savings account set up (you can use more than one account, but that can get cumbersome) and automatically transfer into that account the amount needed to cover the monthly portion of those expenses. For example, if you were setting aside $83/month for Christmas, $50/month for an upcoming vacation, and $200/month for a tuition bill, then your monthly “bucket” transfer would be $333. Use a spreadsheet or ledger to keep track of how much is in each bucket. Make this bucket account as inaccessible as possible (you don’t want it to be “easy” to blow your budget!).
The leftover money can be your “fun” bucket, money to play with and do as you please, eat-out, go to a ball-game, etc. As long as you have your necessary expenses covered, you won’t have to worry about coming up short later.
Enjoy the Christmas Season
It is a rather simple approach to saving and budgeting, but if you follow this key bit of advice, you won’t have to worry about not having enough come Christmastime, and you won’t fall short during the rest of the year either.
Again, this is all about discipline, and most of us will have to make some cuts/trade-offs to be successful budgeters, but as we’ve learned from the Rolling Stones; “you can’t always get what you want, but if you try sometimes, you just might find, you get what you need.”
