What is the best way to budget for holiday and special event spending?

By Ryan Barnes AAA
A:

Even though holidays and special events arrive sporadically throughout the year, you can still fight the costs associated with these events using a little foresight and some digging into past spending patterns - and, this is where your budget comes in to save the day. The biggest hump to get over is in trying to estimate what will be spent in the current year based on historical precedent and current unique circumstances.

A good place to start building your budget is to go through receipts and bank statements to find out what you spent on gifts, travel, food, decorations and the like in the past year. Assess which are related to annual events and which are of a one-time nature, such as a wedding or graduation party. And don't forget to include those often-forgotten items such as cards, wrapping paper and workplace events - these should be considered tied to the holidays for budgeting purposes as well.

Some budgeting experts maintain that you shouldn't be spending more than 2% per year of your total annual income on holiday gifts. That adds up to $800 for someone who earns $40,000 per year. Setting up a personal guide based on your income level is a responsible idea, and can help towards year-long planning. Many people choose to set up a Christmas club account at their local banking institution; this program allows you to set aside small amounts of money on a regular basis (such as weekly or monthly) beginning in January. The program will sometimes offer a modestly higher interest rate than standard checking or savings accounts because you commit to putting the money away for the majority of the year.

Having your money set aside throughout the year not only eases some of the financial stress of the holidays but could save hundreds in finance charges if it means avoiding credit cards or other consumer debt. You may even find that setting up a total budgeted amount for something like Christmas makes it easier to decide how much to spend to each person on your list.

Making a master list for the holidays also increases the chances that you'll spend wisely. You'll be more likely to comparison shop or find that perfect gift on discount a month or two before the actual holiday.

A big no-no is dipping into credit cards to fund purchases that could be provided for with some proper cash management at different times of the year. Purchases made on credit will incur financing charges that eat into your disposable income. If dipping into credit cards is unavoidable year after year, it's time to make some hard decisions regarding how much is spent during these festive times of the year.

It is inevitable that expenses will come up which you haven't planned for; a budget is only a guidepost. The longer you can spend editing a budget based on the past and your expectations for the future, the more accurate and useful it will become.

To find out more about saving for the holidays, check out Avoid Overspending This Holiday Season and Sneaky Strategies That Fuel Overspending.

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