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The holidays may be months away, but it's not too early to start budgeting -- that is if you want to stay out of debt. Even in the fall, too many people are still paying off bills or recovering from last winter's holiday gift giving season.
If you're among those who prefer not to spend your time thinking about bills, now's a good time of year to give yourself a present -- by planning ahead so you'll stay out of debt during the upcoming holiday season.
When it comes to spending, it's easy to get in over one's head. The average balance on a credit card is $7,000, according to statistics from American Consumer Credit Counseling, Inc. Add an average interest rate of 18.9 percent, and you will wish the holidays didn't exist.
"Sometimes people base their gift giving on unrealistic expectations of what they should be buying, instead of on their actual financial situation," says Pam Patrick, a professor of psychology and human services at Capella University. "There's also a psychological dimension based on 'money is love,' which means we spend, regardless of financial situation, to show that we love another person or to avoid conflict."
One organization that understands both the psychological and financial planning aspects of staying out of debt is IHateFinancialPlanning.com, a Web site for the three out of four Americans who hate financial planning.
"Most people hate the thought of paying bills, especially when they're drowning in debt," says Randy Schuldt, IHateFinancialPlanning.com vice president. "But if you plan your gift giving ahead of time, it's not that difficult to stretch out your expenses throughout the year and make it tolerable."
IHateFinancialPlanning.com offers the following tips to help you stay afloat during the next wave of holiday gift giving:
Set aside a fixed amount each month for gifts. Determine how much you want to spend on holiday gifts this season and divide it into monthly amounts. Maintain a diary to keep track of how much you've spent year to date. The amount doesn't matter as much as the ability to stick to the budget.
Pay with cash. Stores actually take it. While it may seem old fashioned, paying in cash remains the best way to stay out of debt. Set aside an envelope of holiday gift-giving cash, add to it when you can, and use it only for that purpose -- it'll force you to stick to your budget. When you run out of money, your shopping is complete. By avoiding credit cards with those high interest rates, you're ahead of the game already. If you feel the need to pay with plastic, grab your debit card instead. The money will be automatically deducted from your account, so make sure to record the amount spent.
Revisit family gift-giving values. Some families have unwritten gift giving traditions. "If everyone in the family always gets a certain number of presents each, but you only have a limited dollar amount to spend, you may need to revisit your gift giving traditions," Patrick says. "Rules and regulations can be helpful, but they need to be realistic. For example, agree that all family members will cap their spending at $25 per gift. It may take some planning, but it can be successful. Sticking to your budget may be better for your family than exceeding it and having an uncomfortable and depressing six months." Another idea for large families is to draw a name out of a hat.
Make out your wish list now. Keep a running list of items that might make good gifts for friends and family. It's a lot easier than trying to come up with ideas at the last minute. As the months go buy, scour Sunday newspaper inserts, wait for those items to go on clearance, and then add them to your stash. If you're having a hard time coming up with a list of gift ideas, make a list of stores where your gift recipients like to shop and watch for their sales.
Hit the summer sales. Never buy anything at full price. While you're cruising through the mall, if you see Aunt Mabel's favorite china on sale, don't just say, "Look, they've got Aunt Mabel's favorite china" and forget about it. Snap up a soup tureen and stash it away for the holidays. By the time gift giving season comes around, it'll be paid for. (An extra tip: keep a mental note where you put it, lest Aunt Mabel get stuck with a fruitcake). Keep in mind that just because you find something on sale or at an outlet mall, it doesn't mean that you can buy more. Ignore the urge to splurge and use the savings to stay within your budget.
Give mutually. Here's another holiday idea: gifts of mutual funds. Open a mutual fund account for anyone on your list. It might be a great way to introduce your children, and maybe yourself, to investing. Not only will you give them an opportunity to learn about mutual funds, but also your gift might bring them closer to reaching a financial goal. If you're completely mystified by mutual funds and don't have a clue where to begin, check out the step-by-step guide on IHateFinancialPlanning.com -- it's in plain, readable English that reviews all the big words and the smaller ones, too. The site also offers Instant Investor, a three-step investment program, and a mutual funds calculator that can help you determine what your gift might be worth down the road.
Recycle and redistribute unused or unwanted gifts. Have you ever received a gift that wasn't quite your taste? Or perhaps it was a repeat of something you already owned? Save money this holiday season by giving gifts you received and never used. Host a party and ask everyone to bring a wrapped gift that they want to recycle. At the beginning of the party, have everyone pull a number out of a hat. The person with the lowest number chooses the first gift and opens it. Each person gets a turn choosing an unopened gift or stealing an opened gift from someone with a lower number. It's a fun twist to gift exchanging, provides lots of laughs and rids you of unwanted gifts. (Tip: avoid redistributing gifts among people who were the original gift givers. Cousin Mary's feelings may be hurt if she discovers that you never used the purple bunny slippers she gave you.)
Give gifts of service. Some families include service to others as part of their holiday gift giving. Make coupon books that family members can redeem for services such as washing their car, making their favorite meal or cleaning up the garage. Physical labor never goes out of style, and the only thing you've spent is your time.
Give the gift that keeps on giving. For the person who has everything, give a charitable donation to a cause they care about. If you make the donation outside of giving season, you'll keep your budget on track, and also help the charity at a time of year when contributions come few and far between. Ask the charity to send their acknowledgement letter directly to you -- then save it until holiday time and notify the person on your list that you've honored them with a donation in their name. By that time, your gift may have already fed several people through a local food shelf, or sent holiday toys to needy children. Or, instead of making a monetary donation, deliver holiday meals to the elderly or donate a stuffed animal to Toys for Tots.
Make a gift. People of all ages appreciate handmade gifts from family members and friends. Instead of purchasing a bottle of wine at the last minute for your Uncle Harvey, consider making the family's famous strawberry jam and giving it to Uncle Harvey (and everyone else on your list). Suggest to your children that they create gifts for their grandparents, aunts and uncles. It could be something as simple as a drawing or a more elaborate arts and crafts project from summer camp. Hand-knit sweaters, hand-painted pottery and handcrafted cards also are options. Remember to start your handmade projects now so you aren't up until all hours trying to complete your gift the night before the holiday.
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