For many folks, this is an extremely stressful time of year. Beyond all the family gatherings (which can be stressful in an of itself), there’s the financial burden associated with all the gift-buying that takes place. We’re tasked with taking our normal monthly budgets and doubling or tripling them in order to accommodate all the gifts. Every family approaches this in a different way, with some charging the gifts to a credit card and paying it off over the next year, some cutting their monthly budgets in November and December to help absorb the increase in spending, some folks get artsy and hand-make a lot of their gifts to save money, etc.
I’d like to share what I do to make the holidays less stressful financially : I have a dedicated “Gift Savings” account. Okay, so this is not a genius solution, but it is one that I find effective. My rationale is that I’ve got to pay for gifts throughout the year one way or the other. Whether I charge them to a credit card or absorb them in my budget, the end result is that I have pay for them somehow. I just find it easier to set aside 1/12 of my annual gift cost each month than to find that money in my budgets for November and December, and it’s certainly just as easy as charging it to a credit card and paying it off the next year. If you’re interested, here’s my approach:
Step #1: Calculate Your Annual Gift Expense
For the first year, it might be easier just to sit down and think of a reasonable “gift budget” for all the people you have to buy for and add it all up to come up with a total. Why stop at Christmas, though? Add birthdays, Mother’s Day, Father’s Day, Easter, and any other gift occasion to your list. For the purposes of this article, let’s just say you came up with $1,200 total.
Step #2: Create a Savings Account Outside your Traditional Bank
Create your savings account, but don’t use the same bank where you keep your checking account. It’s too easy to dip into those funds with a simple instant transfer. I use E*Trade for my purposes, but any other bank will do as long as it takes you a few days to get access to this money.
Step #3: Set Up an Automatic Transfer
We calculated $1,200 on gifts, so we would set up an automatic transfer of $100 per month going into our savings account. Be sure to set the date of the transfer strategically so as not to interfere with any other large monthly bills (such as your mortgage). With any luck, you’ll hardly even notice when this transfer goes through!
Step #4: Buy Gifts, then Pay Yourself Back
How you approach this is up to you. During Christmas time, I have a spreadsheet with the names of all the people I have to buy for, the “budget” I’ve set for them, and a list of the items I’ve bought and their prices. I’ll make the purchases, and then about once per week I’ll make a transfer from my gift savings to my checking account for the amount of the purchases. Alternatively, you could just transfer the entire amount that you think you’ll spend to your checking account in advance.
Step #5: Reevaluate Annually
This is where it helps to keep track of what the actual spending was. There have been a couple years where I’ve over-saved and I come out of the Christmas season with a few hundred dollars left in the gift savings account. The fun part about that is that I can just carry that over to the next year, and I’ll set aside a little bit less money per month. Say you saved $1,200 but only spend $1,000 throughout the year. Now you’ve got $200 in your account and you know you only really need $1,000. In that case, you only need to save $800 next year, or about $70 per month.
I don’t mean to peg this as some sort of superior approach. As I said, every family handles it differently and every family has reasons for how they handle it the way they do. If you find the holidays financially stressful, however, this is one alternative that might be worth considering. I really enjoy doing it this way because I hardly notice the monthly transfers going out, and when Christmas comes around I’ve got everything I planned to spend in its own dedicated account. It allows me to enjoy the holidays just a bit more, without being so wound up about the dollars and pennies.