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As Black Friday and Cyber Monday fast approach, it’s a good time to think about how much you really have available to spend this year on gift giving. Although delighting your loved ones with gifts can be exciting, no one likes a credit card hangover in January, or the feeling of having overextended yourself at the expense of your own long-term planning goals.
But you need not sink into debt in pursuit of the holiday spirit. Here are some ways to set cash aside for gifts.
Create (or automate) a spending plan
One approach that works well is to set up a savings account early in the year with an automatic monthly transfer amount (say $25). You’ll barely notice it during the year, but by November or December, it amounts to a nice chunk of change.
Another tried-and-true approach is to build an overall spending plan with a line item for gifting. This account can include money for birthday gifts as well. If you’ve never set up a spending plan, it’s pretty easy to get started. You can use Microsoft Excel or Google Sheets, or go granular with Quicken or QuickBooks.
In the most basic spending plan, you’d create a simple spreadsheet that lists your fixed expenses (such as rent or mortgage, insurance and food costs) on the left side of the page, on either a monthly or annual basis. Then total the expenses at the bottom using the spreadsheet’s “sum” function. On the right side of the spreadsheet, list discretionary expenses (such as holiday or birthday gifts, entertainment and vacations) and total those, too.
The sum of these two numbers should be less than or equal to your overall income, and should take into account money set aside for investment funds, retirement funds, taxes and emergencies. Let’s say you determine that you can spend $300 on gifts. Once that $300 is spent, you have to wait until next year to buy more gifts.
Keep a separate fund for discretionary expenses
It’s also smart to regularly set aside money for discretionary expenses. Most fixed monthly expenses are paid from your checking account, and you might have a savings account for your fixed annual expenses, such as property taxes or homeowners insurance. In the same vein, you could open another account (or accounts) for your discretionary expenses, like a gift or travel account. By setting up automatic monthly transfers from your checking account into these savings accounts, the money will be there when you need it later.
If you don’t have any income left over (i.e., discretionary income) after you’ve paid your fixed expenses, that’s a signal that you have a problem. Holiday gifts should not come from your emergency fund, or be charged to credit cards unless you can pay the bill off in full at the end of your billing cycle.
Make planning a priority
If you must charge gifts or find money elsewhere for this year’s holiday season, consider setting up a calendar item to start a spending plan in early 2016. Make it a point to set up separate saving accounts for monthly transfers to save up for next year’s gift fund. Then, by the next holiday season, it will feel as good to give (and spend) as it will for your loved ones to receive. Give yourself the gift of boundaries and don’t extend yourself further than you can afford.
Keep in mind that gifts don’t necessarily have to be expensive; in fact, other kinds of gifts — perhaps those involving your time and talent — might better exemplify the holiday spirit. For example, my firm gave a talk a while back to a group of young apprentices training to work in restaurants in San Francisco, and many of them planned to cook a meal for their loved ones during the holidays, because they simply couldn’t afford to buy gifts.
Sometimes, there’s no better gift than that of time spent together.
Image via iStock.