Holiday spending: Take measures to direct your financial destiny

Explore suggestions from MSU Extension to avoid financial holiday “hangover” and to be on firmer financial ground at the end of the year.

This is the time of year when your budget is at risk for falling apart. The holiday season and all of the flexible expenses that come with it can derail all of your good financial habits in one short month, depleting your savings very quickly. Time is growing short and you may find your gift and entertainment list growing longer. According to a survey by the National Retail Federation, “So far this season, consumers have stocked up on a plethora of gifts for their loved ones and themselves.” While this is a boost to the economy, if unplanned, it can be disastrous for the family financial plan. The key is to stop today and assess your financial situation, then create a plan going forward to minimize the damage.

The first step is to review your financial position. Do you know what your credit card balances are on each of your accounts? Can your reasonably pay off these amounts in the next month or two? Next, examine your checking and savings accounts. Will the balance cover additional planned and some unplanned expenses or are you already seeing red? Now is the time for action: stop and reevaluate your spending for the rest of the month.

The next step is to realistically determine what gifts still need to be purchased and create a spending plan that will carry you to the end of the year. Download the American Financial Services Association Education Foundation Holiday Spending Guide. If you need to make cuts, do so now. Michigan State University Extension Educator Dave Treul discovered that consumers pay more for an item when paying with credit as opposed to cash. Paying 18 percent or more for the holiday season in July will have a negative effect on your financial future. While many will bank on using their tax refund to cover their holiday expenses, you might consider using that money in other ways; for instance, it could be used as emergency savings, putting you and your family on firmer financial ground.

The final step is to assess how much you can reasonably afford to spend on the holidays, divide that amount by 12 and plan to deposit that amount each month in 2013 into a special holiday savings account. For example, if your holidays cost $650.00 divide that by 12 putting aside $55.00 each month for the next 12 months; that will allow you to have a debt-free gift giving season in 2013. Next year all you will need to do is create a holiday gift and spending plan, withdraw your savings and enjoy spending without the worry of a the holiday financial hangover.

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