It’s Christmas time, and like most of Caribbean society, that usually involves family time, great food, fun memories and yes, an increase in spending.
If you’re spreading some Christmas cheer, particularly after the year we’ve all had, spending for the holidays doesn’t necessarily have to drive you into debt.
Like most times of the year, an essential holiday budget is what you need to keep your spending on track and ensure you buy items with sensible value.
Decide on a spending limit
The events of 2020 may be the best indicator that spending all your money of unnecessary purchase is not wise financial decision-making. Therefore, write down the funds you have available for spending.
Do not include all your money. Your savings should not feature in this as well as money you have set aside for ‘rainy day’ emergencies, home repairs or investment. Your holiday budget is strictly for spending. Your retirement savings, emergency funds and investment accounts should not be touched.
Once you have decided on a suitable amount for spending, how should spending be allocated? In other words, who form your holiday shopping list?
Make a shopping list.
Who are the people you usually buy for? That would include your family – spouses, parents, children and other relatives. Remember, keep your spending budget in mind. As much as you may like to please everyone, you have to bear in mind your spending limit.
Once you have reached a suitable number of persons on your holiday list, you can brainstorm ideas on what items to buy. If you want to go a step further, categorise your budget in terms of the groups of people on your holiday list. How much would you allocate towards your immediate family? How many gifts per person can you afford? How much will you set aside for distant relatives?
This spending plan ensures you don’t cross your limit. Based on your budget, you can also identify possible gifts or areas to shop for those on the list. You may also want to have funds in the event you have to buy for someone who unexpectedly gives you something, or if you’re part of any Secret Santa at work or church.
Tips on budgeting for the holidays
One great idea when putting together your budget for the holidays is to assess how much you spent last year as well as the previous year. What was your expenditure like? Did you overspend? It may be difficult to ascertain an exact figure, but by estimating your purchases, you can identify if your spending has been increasing. If so, you may want to set a spending cap which enables you to enjoy the season, but will preserve some funds for use in 2021.
If you spending is roughly around the same level, set your budget limit within that range or maybe slightly lower. This allows you to spend a less and enter 2021 with some more cash on hand.
Write it all down
A budget is a great financial tool, however, if you try to calculate all this in your head, it is likely that it’s going to be cumbersome. Or worse, you may forget your spending limit and buy too much. Always write down your budget and keep in someplace you can see and review it if necessary. Writing and seeing it down on paper reminds you to stay within your means.
How to plan & prioritise your expenses
When you plan what you’re going to do, and how you’re going to achieve something, it takes a bulk of the burden off your shoulders. With expenses, it’s the same concept. Once you are alive, you will have expenses. Therefore, you need a solid plan to get them in check, to avoid draining you financially or becoming mountains of unpaid debt.
Keep them separate
Categorise expenses according to the most essential and urgent. These have to be paid first. Essential expenses include your utilities, rent, car maintenance, insurance and other services that you utilise on a daily basis. These services ought to be at the top of your budget expenses.
Non-essential expenses
These type of expenses refer to personal pleasures such as vacations, shopping sprees, entertainment and luxury items. They are not critical for your everyday living. Occasionally they may be deemed as important. Nevertheless, these expenses are not your priority. Keep them for after the essentials have been covered and you have the additional funds to splurge a little.
Have a designated account for savings
Very often, people usually lump both their savings and expenses together. These are two distinct categories and should be kept separate. Build savings by having a designated savings account that is separate, and one in which you do not have immediate access to.
You could set up a savings account with a financial institution – bank or insurance company that offers interest. You could also establish automatic withdrawals with your bank to funnel some funds into your savings account when your salary arrives. The advantage of this, is that you never technically see the money going into your savings account. That way you do not have the temptation to spend it.
Plan & prioritise other areas of your life
The funds that you do have at your disposal, should be categorised as essential or non-essential expenses and be paid in order of importance. It is also essential to note that money usually flows in accordance with other things in your life. This means that if other facets of your life – your time, workload, and relationships are disorganised, chances are it’s going to be a difficult for you to prioritise your expenses.
For proper expense management, it is critical that other areas of your life become organised as well. It could very well be that your expenses have been mismanaged thus far, not solely because of poor financial decisions or education. It could be that your overall life in general needs some sense of structure and order to achieve stability.
What should I read next?
- Read our article about Financial planning for the new year
- Read our article about Financial plan
