Avoid the Red, Save More Green This Holiday Season

by Carrie Anton

During the 2005 holiday season, surging energy prices didn't keep Americans from showing retailers the money. According to the National Retail Federation, Washington, D.C., retail industry sales (which exclude auto manufacturers, gas stations, and restaurants) increased during November and December by 6.4% when compared with 2004. After all receipts were tallied, consumers spent a total of $438.6 billon that (2005) holiday season--more than $740 per person.

Maybe $740 isn't a lot of money to some, but for many it could mean groceries, gas, or even a mortgage payment. Regardless of how this money could be spent, the commercialization of Christmas and Hanukkah leaves many people feeling obligated to shell out more cash on piles of presents.

"People tend to increase their spending around the holidays for a combination of reasons," says Stanley Kershman, author of "Put Your Debt on a Diet: A Step-by-Step Guide to Financial Fitness." "Some may feel guilty about not spending as much time with their loved ones or friends and will compensate with a special gift. Others may feel they need to 'keep up with the Joneses' to match what friends, families, neighbors, and even co-workers are doing. And some simply get swept away in the glitter of the season--overspending before they realize what they're doing. For all of these reasons, setting a budget and making a list--and matching the two--can be really effective at reining in the 'over' part of holiday overspending."

'Wise Men' rule

While gifts most likely always will be synonymous with the holidays, they don't have to play the lead role. Alaska resident Christina felt Christmas was losing its joy and spiritual significance and her four children were well on their way to being spoiled. Feeling defeated during the holidays, Christina and her husband implemented the "Wise Men Rule." Christina was a respondent to the Home & Family Finance ® Resource Center's "What's Your Story" feature. (We developed this article with input from readers contributing to What's Your Story.)

"We explained that Christmas is a celebration of the birth of Christ and not about gifts. We told them how Christ received three gifts on his birthday from the Wise Men. And while we would not be giving the children gold, frankincense, and myrrh, we would honor the three-gift tradition as well," explains Christina. Last Christmas, Christina's children received one gift from Santa, one from their parents, and a sibling gift, where the four siblings drew names before exchanging. The children took to the idea wonderfully, but even better was that Christina and her husband experienced record-low holiday spending.

Smart spending

Changing the gift-giving dynamic within your own family is one route to holiday savings, but what about the other people on your list? The August Partners for Macerich Company, Santa Monica, Calif., reported in the "Shopping in America™ Holiday 2005 Survey #2" that the average American has 10 [9.8] people for whom to buy gifts. Since it's probably not realistic to think you can get out of buying holiday gifts entirely this year, you can limit how much you spend. Brad Stroh, founder and co-CEO of Freedom Financial Network, LLC, San Mateo, Calif., and bills.com recommends:

• Crunch the numbers. Create a holiday budget listing all expenses, including small gifts to teachers, babysitters, newspaper carriers, and others. Be sure to include extras, such as cards, wrapping paper, decorations, and holiday clothing purchases. Set a spending limit for each person and item on your list.
• Avoid money matching. In this time of global unrest and an uncertain economy, the time is ripe to remember that the holidays are about more than just giving and receiving. Most people feel the stress of the dollar-for-dollar matching competition, so talk with the people on your shopping list about setting limits. If gift piles look skimpy, fill in gaps with homemade presents or offer help to the recipient in the way of babysitting, yard work, home-cooked meals, or help putting away holiday decorations.
  Changing the gift-giving dynamic within your own family is one route to holiday savings.
• Start early. Avoid the last-minute rush so you'll have more time to comparison shop. If you're in a rush to get out of a crowded mall or store, you're more likely to spend impulsively as a way of escape.
• Get creative. Set up a gift exchange among friends and family. Trade partners every year so no one gets stuck with Aunt Tilly's fruitcake two years in a row. For children with big-ticket items, consider pooling resources with other family members rather than splurging yourself into debt.
• Be a quitter. When you hit your budget limit, stop! If you need hard-core support to keep yourself in check, leave credit cards at home and put each person's budget in an envelope, in cash. When it's gone, it's gone--and you're done.

Most important, don't spend beyond your means. "If you run up a big bill to celebrate the holidays and then pay it off at a leisurely pace, 2007 is likely to cause financial heartburn—the sour sensation that your holiday overindulgence is taking way too long to leave your budgetary system," Stroh warns.

Consider the example of a $2,000 credit card balance at 18% interest. If your minimum payment is 2% of the balance due each month, it will take you about 19 years to pay it off and you'll pay $3,862 in interest.

Holiday traditions beyond gifts

• Mark the holiday time through traditions rather than gifts. When Kelly and her Arkansas family felt their numbers were growing too large to exchange gifts, they came up with a plan to instead pool their efforts to help out another family in need. After contacting churches in their community and asking for recommendations, Kelly and her family united to anonymously buy food, gifts, and holiday goodies for the family in need.
• Make the holidays special. Talk with your friends and family about what they like and dislike about the holidays. From those discussions, build a plan that decreases the attention on gift giving.

"And don't forget the very foundation of the holidays--it's a time of charity, goodwill, peace, and joy. Nothing that you do with love and care should leave you feeling inadequate in any way," says Kershman.

Published November 20, 2006

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