Count it all joy: Making a budget this Christmas season is key
For many people living paycheck to paycheck, Christmas is anything but a joyful season.
According to a 2012 National Retail Federation holiday consumer spending survey, the average shopper will spend nearly $750 on holiday gifts, décor, greeting cards and more this year. That's nearly $750 most people in that demographic don't have to count as "expendable income." Instead of having what is known as "disposable" assets, there is not a single dollar of income that can be classified in the monthly budget as "non-essential."
Instead, $750 is practically a house payment. Most people living in near hand-to-mouth scenarios don't have an extra house payment folded up under their mattress.
Take heart. There is help - especially for those who have to count every single dollar of their monthly income to try and make ends meet.
Allen-based Sandy Vaughn is a financial-planning expert with Merrill Edge. Her professional counsel is to simply sit down and look at it all in the face - make a budget, in other words. In doing so, you can get what you want for Christmas this year - being able to enjoy the season!
Vaughn says that too often people who struggle to make enough to pay all of their monthly financial obligations think they can't budget because they're already enduring an economic shortage to begin with. What's the use of budgeting if you know you don't make enough money to pay all your bills, anyway, people often ask? All the more reason, Vaughn says.
"That's when you need to make a really good budget. For instance, if after you chart your expenses for a month and you find that you are spending $800 a month eating out, you can quickly see where that's an area where you can reapportion your spending to saving more for your long-term goals, such as retirement, paying off your credit cards and college planning."
Vaughn says there are four main criteria for establishing a holiday budget in order to take control of your holiday spending. They are:
Pay off credit card debt
Set savings goals
Stash holiday cash
Create a holiday checklist
Many people tend not to make a credit card payment before the holiday season begins. Then they begin to use it. That's a double-whammy. Next thing they know, their long-term financial goals are interrupted, even sabotaged. They often lose two or three months of savings they would normally put toward retirement or college planning because they are trying to get their credit card balances back in the black.
Vaughn advises to set a spending goal for the holiday season. Make a list of who you want to buy presents for with a specific amount designated for each person. If you see you are going to go over the amount set for any particular person, buy them a gift card instead.
When it comes to setting savings goals, Vaughn said there is a specific number to generally follow.
"It varies depending on what kind of job they have. For most people I would say it should be at least six months of their income to make sure they can cover their bills for a six-month period," Vaughn said. "However, if they are in a position that is more cyclical like construction, positions tied to the economy like retail, also hairdressers or other jobs that tend to not do well when the economy is doing bad, then they may want to consider 12 months of income saved."
As for stashing holiday cash, shoot for what you intend to spend. If the average is nearly $750 and you fall into the "average" category, then carve out of your monthly income $750 to use for the holidays and pay for your purchases with that cash.
When it comes to creating a holiday checklist, look at ways to invest in other areas by taking your previous gains from the market and re-investing during the cyclical ups and downs of the market. If you are one of those living from each paycheck to another, begin to pay yourself first by putting back 10 percent of each paycheck into savings to build up to realizing your personal savings goal.
Christmas doesn't have to be so glum because of a financial lack. Instead, the season can be reason for celebrating like it is intended. All it takes is a little determination to get started - and then set that budget.