“Tis the Season”

inas article holiday budget

It was Christmas morning, and our kids, bright-eyed and way too bushy tailed, were all agog at the twinkling lights and the shiny presents under the tree. Soon, both were working into a present-opening frenzy, with wrapping paper and bows flying. Each barely registered the gift itself, so anxious were they to move to the next one. The whole process was repeated at the extended family gathering later that day. Surveying the wreckage after it was all over, I turned into Mom Scrooge. We went to a gift exchange format with the extended family, and were more judicious with our gift giving within our immediate family.

‘Tis the season, you say, to spread good cheer throughout the world, and spoil the children… yes and no. Americans spent an average of $801 on Christmas shopping in 2013, according to the American Research Group and, likely, 60% went into debt as a result. Maxing out credit cards and spending the rest of year digging out of that debt load is no way to spread cheer. So what is one to do?

Set a Budget: The rule of thumb is to spend 1% of your salary on the holidays. That includes everything (gifts, decorations, baking, entertainment, etc.). It also depends on your debt load. If you carry credit card balances and were not able to pay off your credit card in full after the holiday season, take a hard look at how much you spent and cut back to an amount you can afford to pay off right away. If not, you will be stuck paying interest (currently averaging 15% a year) on the outstanding balance, long after the good cheer has dissipated.

Save for the Season:  A woman told me once that she stashed cash away all year, and only spent the cash she had saved on holiday giving. She refused to use credit cards for those purchases, knowing full well how much easier it was overspend with plastic. That discipline worked so well, she does the same for major purchases, saving before spending. This old-fashioned approach would have made our ancestors proud.

Plan Ahead:  If you are working with a budget, you will be forced to plan for each gift you purchase. So “make a list and check it twice.” We have all experienced the desperation of not having a gift in time, and the temptation to spend recklessly just to get it done. Going shopping with a list and being deliberate about what we give will often result in a more thoughtful gift that is likely to be more appreciated than an item bought on impulse.

Start Early: It does seem like the holiday shopping season starts earlier every year. Use it to your advantage. After you have made your list, check for sales locally and online. And, better yet, if you see an item on sale during the year that would be perfect for someone on your list, buy it and store it away for the holidays. Some use post-Christmas sales to stock up for the next year’s gift giving. (That’s way too much planning ahead for me.)

Give the Gift of Education:  Rather than give young ones a toy or clothes that they will soon outgrow, I prefer making a contribution to their college education. Yes, I am now Aunt Scrooge or Grandma Scrooge. Writing a check to the child’s Michigan Education Savings Plan (or another 529 account) is a wonderful way to invest in the child’s education and get a state tax deduction as a bonus. (Check out www.misaves.com).  Of course, this is assuming that others have the toy giving covered.

Easier said than done. Despite all that preaching, I found myself in the kids’ aisles of a department store yesterday, picturing how cute my grandson would look in a little red number at Christmas….

Ina Fernandez CPA has over 25 years of investment experience, and is Managing Director at Birmingham, Michigan-based investment advisory firm Liberty Capital Management, Inc.

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