Dos and don’ts of holiday spending

Q. I’m one of those people who wakes up every year on January 1 with buyer’s remorse. Do you have any tips to help me manage my holiday spending?

A. ’Tis the season to be shopping. And while gift giving is an important part of the holiday tradition for many people, it can also lead to big money problems when the credit card bills come due. You want to bask in the glow of your holiday celebrations, not hide under the covers stressing out about how you’re going to pay for it all.

The extended Sellery family—30 members strong—has tried many different approaches to gift giving over the years, from a $5 spending limit to no gifts period. The evolution was partly driven by money. But the bigger influence on the decision was simplicity. We just didn’t want to spend all that time at the mall beforehand and then six hours around the tree on the day of.

Here are some dos and don’ts to help you keep the merry without spending all the money.

Do: Reset expectations with family and friends

Holiday spending gets out of control when expectations rise too high and the shopping list becomes too long. Now is the time to talk with your family and friends about how you all want Christmas to go. This is the basic conversation starter: “Hey, I’d like to talk about how we do gifts this year.…” You can suggest some of your own ideas on how to shorten the gift list and/or lower the cost per present. For example:

• Limit gift giving to the kids/grandkids only, instead of everyone around the tree
• Pool gift money to purchase an experience or game for everyone, or contribute to a charity
• Pick names out of a hat so everyone buys and receives one gift
• Set a spending limit

Some people will be amenable to changes, perhaps feeling a similar need to rein things in. Others will want to hold on to specific traditions. The dynamic can be particularly tough to manage in extended families where history and financial circumstances differ. It can be an emotional minefield, but holiday spending is still worth talking about.

Do: Set a total budget for holiday spending

I often get asked: “How much should I budget for the holidays?” I never have a good answer because it isn’t something that you can benchmark. Every family is different in terms of their income, debt and gift giving traditions.

Here is my advice: When you’re setting a budget for holiday spending it matters less what the amount is and more that you stick to it. That way you’ll be conscious of what you are spending, instead of shoving things into your cart the way you shove popcorn into your mouth during reruns of Law & Order.

This budget should be as inclusive as possible: Gifts of course, food and liquor if you’re entertaining, gas if you’ll be driving to visit far-flung family members, tickets to holiday shows, and an amount to cover that new outfit you absolutely have to have for the big holiday party.

Let’s say your number is $2,000. Assuming you don’t have that money in your bank account, figure out how long it will it take for you to pay it off, based on your disposable income. Once you have your budget set you can look at your gift list and see what you can spend on each person—including taxes.

It can be very hard to muster the willpower to constrain your spending when you’re in the store so you might try leaving your credit cards at home and only taking cash with you. It will be totally annoying, but it will help, I promise. Oh, and watch out for the “one for you, one for me” phenomenon. Unless you’ve put yourself on your gift-giving list, don’t add a sweater for you, even if it is on sale.

Don’t: Get drawn in by store credit cards

The first time all it took was a free pen. The second store won my heart with the promise of a free watch. Then the third offered a 10% discount on the mound of product I’d just placed on the counter. In a flash I had three store credit cards, and three inquiries on my credit, which was a hit to my credit score. And if I held a balance on any of those cards I would have paid the highest interest rates out there. Add to that the fact that I was spending more than I would have otherwise.

Those are three big strikes against store credit cards: the hit to your credit score, the super high interest rates they charge and the higher spending they often prompt. Retailers make money from their store credit cards—that is why they push them so hard.

Don’t: Limit yourself to what you’ve done in the past

One final tip: Don’t limit yourself to what you’ve done in the past. The holidays are a great time to be creative. Bake cookies, package experiences in gift certificate form, or give the gift of your time. Celebrate the holidays in a way that doesn’t leave you with a debt you’ll be dealing with until next December.

This article is presented by CIBC Pace It, as part of the MoneySense guide to debt management. 

About Bruce Sellery

Bruce Sellery is the CEO of Credit Canada, the country’s longest-standing non-profit credit counselling agency. He is a former MoneySense columnist.