Tis the season for giving, and according to a recent poll by Accenture, Canadians are planning on spending about $873.00 on the holiday season this year. In fact, according to the same poll, 39% of Canadians plan on spending more this year than last.
The RBC post-holiday poll that was released in February of this year highlighted that 41% of Canadians went over budget last holiday season and 44% of Canadians don’t plan to change their spending habits this holiday season.
“These numbers are troubling because, often going over budget means you are pulling that money from somewhere. If it is from your entertainment budget then ok, but some families are missing paying on bills or putting these extras on credit, which can create a financial disaster down the road” says Matthew Keenan, Credit and Education Counsellor at Credit Counselling Service of Sault Ste. Marie and District.
In fact, if you were to borrow $1,500 to pay for all expenses this holiday season on a credit card that charges 28% interest and decided to pay just the minimum payment, it could take upwards of 19 years to pay off and cost an extra $3,978 in interest payments.
Mr. Keenan offers the following advice for sticking to your holiday budget and helping to avoid the credit crunch come the New Year.
Set a budget:
“Before heading off to stores, you need to know how much you are able to spend” cautions Keenan. Having a holiday budget starts with what you can comfortably pay in cash come the end of the month. What this means is you aren’t sacrificing priority bills (like food, rent, PUC, etc.) to pay for holiday spending. It also means that if you decide to use credit as a convenient tool to buy gifts, you will be able to cover the bill in January, in full, in cash. This amount will help set you up for your holiday spending and should be seen as a hard line not to go over.
Make a list and check it twice:
There is a reason the man in red has a list and checks it twice. By making a list of who you are going to be buying gifts for, you are able to see where your money will be going. By visualizing this, you can stop and ask yourself if your Great Aunt Millie really needs another collectable or would a greeting card be enough? A list also helps you stay inline when it comes time to shop.
“A good gift list will include everyone you want to buy for, what you plan on getting them, and how much you are willing to spend” says Keenan. “Further, a list is a form of checks and balance when you reach the mall and get overwhelmed. You can always resort to your list.”
When making a list you have to be aware of tax and any shipping costs. Keenan points out that, “with so many people taking advantage of shopping online, there is an added expense of duty and shipping for each gift, and the cost of the bridge toll if you have the gift shipped stateside. All of these expenses add up even if they are a few dollars here and there. The cost is then amplified if put on credit.” If you have to ship, an item then you should consider including the shipping cost into the total cost of the gift to help you balance your budget. You could also set aside a portion of your total holiday budget for items like shipping costs, just avoid the temptation of dipping into it to help pay for an extra gift when you are out and about.
You should also have a list of all the holiday trimmings you need to buy and factor them into your holiday budget. Do you need a new string of lights? What about new wrapping paper, hostess gifts, etc.?
Use reward points:
“Many of us collect rewards on our credit cards or through loyalty programs, but rarely ever use them. Now is a great time to see how you can put those rewards to good use by buying gift cards that you can use in store to get a gift for someone” recommends Keenan.
In many cases, premium credit cards allow you to collect points based on the money you spend but also carry an annual membership fee. If you are not getting at least your membership fee back in points, you are overpaying for your credit card.
Leave the cards at home:
Keenan suggests that, “the easiest way to avoid putting your gift and holiday expenses on credit is to leave the cards at home. Shopping with cash creates a psychological block in many people, we are far less likely to spend a big bill on a small item then we are to swipe plastic to get that item.”
By using cash only, you must stick closely to your list and what you have budgeted because; going over for one person will mean that you are taking from another. When you use credit or even debit, the likelihood that you will just swipe your card to make up the difference increases.
When shopping with cash it may be wise to have a number of envelopes with you, each labelled with the recipient’s name, gifts you plan on buying, and the allotted amount of cash. This way you know you will have enough to cover your gift expenses.
It is easy to let our spending get out of hand; the RBC survey confirms that many do. By taking a few seconds to keep track of your spending against your list and budget, you will be better equipped to keep on track and make changes where necessary.
“I would recommend that people keep a small notebook and pen with them during the holiday season and keep a running total of their holiday expenses. Apps are great, and many online banking platforms track as well, but they are often a bit delayed, pen and paper works in real time. Also, when you have to do the physical inputting of the numbers, you are more psychologically attached to the process of spending money, which may help keep you in check” suggests Keenan.
Start saving for next year:
According to the RBC post-holiday survey, only 31% of Canadians felt that they should set a little aside each month to prepare for the holiday season. Keenan says, “ setting aside each month is the key to really having a stress free, financial rewarding holiday season. If you want to spend $1,500 on the holidays, you would need to save $125.00 per month starting January 2017. Start saving in August and the number creeps up to $300.00. Wait until October and you are looking at putting away $500.00 per month into a savings account. It just makes sense to save a little each month so that come January 2018 you are debt free from the holidays!”
You can make this savings automatic by setting up a savings account and automatic transfer of money on payday. “It isn’t enough to just save, we always make excuses for why we need to use that money, but once you nickname the account with your wife’s, husband’s, or kids names, you are less likely going to “borrow” money from that account throughout the year. You have essentially told yourself, this is their money and by borrowing it you are taking from them. That is a hard psychological pill to swallow. These small blocks can help you keep on track to saving” recommends Keenan.
The Credit Counselling Service of Sault Ste. Marie and District is a not-for profit accredited credit counselling agency whose mandate is to educate and counsel the community on issues surrounding money and credit management.
For more information about credit counselling services in Sault Ste. Marie, please contact Credit Counselling Services of Sault Ste. Marie & District, 298 Queen Street East, Sault Ste. Marie, ON, P6A 1Y7, visit our website at www.creditcounsellingssm.ca, follow us on Twitter @CC_SSM, or LIKE us on Facebook..