Now is the Time to Budget for Christmas
What’s your Christmas spending strategy?
With Christmas looming, now is the time to think about allocating yourself a budget.
Too many Aussies get themselves into unnecessary debt during the festive season, simply by not being mindful. That is not being aware of what kind of cash they are hemorrhaging: over spending on gifts and entertainment, and holidays, as well as spending up big in the New Year sales.
Long after the tree has been pulled down and the decorations have been packed away, many Australians will still be paying off their Christmas debt.
Australian holiday spending
According to Australian Investment and Securities Commission (ASIC’s) MoneySmart website, Aussies plan to spend an average of $955 over the holiday season. Many spend much, much more than that. In New South Wales, we’re particularly generous with our gift giving, planning to spend an average of more than $650. That’s just gifts, it doesn’t include the other ancillary spending.
Credit card debt
Also according to MoneySmart, 36 percent of people will put their Christmas spending on a credit card, and 4 per cent will cover costs with a loan. The average post-Christmas credit card debt is $1666, and 82 per cent of people will take up to six months to pay off that debt.
That means that even by the time the new financial year rolls around, they will only just clearing the previous Christmas expenses. It’s a long time.
Another survey by Finder which was conducted last year also found that nearly 4 million Australians (41 per cent) are likely to return from their holidays with a debt lag of a collective $7.5 billion. Those are big numbers.
Remember, credit card debt is one of the most expensive forms of debt, so if you’re not certain that you can pay it off quickly, it doesn’t take long for the original amount to accrue high interest and sometimes late payment charges too.
If you consider that once January rolls around and life returns to normal, on top of Christmas card debt, you’ll still be faced with regular bills, and there’s always the potential for some unforeseen expense too. Life has a way of surprising us all.
Understanding your own capability for dealing with debt is not just about having a tolerance for it, it’s about knowing you can comfortably pay it off without creating a headache for yourself, or falling into a cycle of debt that you cannot easily escape from. Plus, now that Australia has introduced Comprehensive Credit Reporting, managing debt is more important than ever, because if you don’t, you can adversely affect your chances of getting a loan, or other access to funds if you really need them down the track.
Credit cards are indeed a convenience, but they need to be handled wisely.
There’s a better way. And, if you start now, by realistically setting yourself some spending limits and beginning to put money aside, you can avoid the post-holiday financial hangover.
Ways to save at Christmas time
Without wanting to sound all ‘bah-humbug’ about it, there are ways you can manage your spending, and there are ways to reduce your spending too.
1. Most importantly, set a budget
Set yourself a budget for spending on gifts. Store vouchers are a great way to do this – you can easily stick to your limit and then your gift recipient chooses what they want to purchase. If they use the card in the post-Christmas sales, they’ll get more value. Win-Win.
2. Make a list and check it twice.
Are you buying unnecessary gifts? Consider the amount you spend on wrapping and cards too – which often just get thrown into the bin.
3. Celebrations can be costly.
Eating out, socialising, celebrating, all come at a cost to your wallet – and the best way to deal with these occasions is take cash, and leave the cards at home. That way, when the ‘Christmas cheer’ settles in, you’ll only spend what you have, and not be tempted to spend more. But always remember to make sure you have a taxi/Uber fare home.
Similarly, if you’re entertaining at home, can you ask guests to contribute by bringing their favourite drink or dessert? This way you can reduce the financial burden that can come with entertaining.
4. Shop saavy.
Shopping online can save you money. You may find that a store other than your favourite retailer has exactly what you want at a cheaper price, but don’t forget to factor in postage. That’s also why you need to start now – to make sure your gifts arrive on time and you’re not forced to pay extra for couriers.
5. Travel wisely.
The bottom line is that Christmas in Australia goes hand in hand with our peak summer holiday season – school is out and most businesses shut down for a period. So, get organised early to avoid paying last-minute premiums. House swaps can be a great way to go somewhere new without actually having to pay up big for accommodation and there are several websites that facilitate this.
There are hundreds of tips online for ways you can save over Christmas, and if you’re serious about managing your finances wisely, some of them are definitely worth a look.
Every dollar counts when you have a saving goal. But what’s most important is that you prepare and not just rush in blindly with your wallet open. Christmas and the holidays are expensive, but if you start now, you can put plans in place to make sure you manage spending wisely, and still have a time to remember.
This is general advice and should not be treated as personal advice. Tyron Mitchell is an authorised representative of MoneyLink Financial Planning Pty Ltd ASFL No: 247360.
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