You say you overspent your budget last year and didn't pay off your Christmas bills until Easter? Then you need some advice on how to hang on to more green. Our ten tips will keep you out of the red this holiday season.
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1. Pay cash. No, that's not hopelessly old-fashioned. Recently I was interviewed on a radio talk show, and the host shared her holiday shopping M.O.: She always pays in cash, preferably $100 bills. "The bank teller always looks at me strangely when I ask for hundreds, but it makes you think twice when you go to buy something," she explains. "You really don't want to break a Benjamin." Her co-host on the show does his holiday shopping with a debit card: "When you're out of money, you're out of money."
2. Know thy enemy. If you're going to pay by credit card, use the one with the most favorable terms. That may sound obvious, but many people carry as many as five bank cards in their wallets and don't always know what the interest rate is on each card. Nor do they know that if they exceed their credit limit or pay late their rate could jump to 30% or higher, and they could be slapped with a penalty as high as $39.
Another credit-card trap is two-cycle billing, in which card issuers charge interest on balances you've already paid. In a recent study of credit-card companies by the Government Accountability Office, one-third of those surveyed use this billing method, which works like this: Assume that you start a billing cycle with a zero balance and charge $1,000 on the credit card (not unusual for holiday shoppers). You make a timely payment of $990, and expect to pay interest on the remaining $10. Instead, you're charged interest on the full $1,000. Even though you owed the credit card company only $10 for 30 days or less, the interest charge in this example from the GAO was $11.02. Moral: Read the fine print in your card agreement, and pay your balance in full.
3. Keep a running tally of your credit-card spending. When you come home from a day of shopping, immediately subtract what you've spent from your checking-account balance. Not only does that give you a visual record of how much you've spent, but also it ensures that you'll have enough money in the account to pay the bill when it arrives.
4. Have a plan for paying off your bills. If you overspent last year, it's time to cut back. But slashing your budget in half can be like trying to quit smoking cold turkey -- it often doesn't work, and your failure makes you feel worse than before.
Instead, come up with a more realistic goal. For example, make up your mind to cut your spending by 20% and pay off your balances by Valentine's Day. Meeting your deadline will give you the confidence to whittle another 20% off your spending next year (use our What will it take to pay off my balance? calculator to set up a repayment plan).
5. Get easy gifts out of the way early. I have a friend who sets aside money for cash gifts -- to the paper boy, the babysitter, the hairdresser, the trash collectors, out-of-town nephews -- before Thanksgiving. That way those presents don't have to come out of her December shopping budget. (See our Tipping Tip Sheet for guidance.)
6. Make a list. Don't dismiss this perennial piece of advice as too simplistic. Writing down which stores you'll visit and which gifts you plan to buy helps focus your shopping excursion and makes the chore more pleasant because you don't get caught up in holiday hysteria. And need I point out that you'll spend less money than if you rush from store to store snapping up "bargains" willy-nilly?
7. Think outside the gift box. Plenty of alternatives are less expensive, and more fun, than buying a gift for every sibling, in-law, niece and nephew. Instead, have a family gift exchange in which you each choose one name and put more thought than money into selecting a single gift.
Our family did this last year, and it was a touching success -- especially when my daughter presented her gift to her grandmother, whose name she had drawn. Unbeknownst to any of us, Claire had put together a photo album of all the grandchildren -- a particularly poignant present because her grandmother suffers from dementia and doesn't always remember the grandkids.
Or buy a single gift for your brother's entire family -- perhaps an "entertainment" basket filled with DVDs, microwave popcorn and gift certificates to the movies. Or for your sister, the new mother, how about an evening out at a restaurant, plus your services as a free babysitter? The best gifts don't cost money.
8. Be creative with the kids. Let's say you're planning a trip to Walt Disney World during winter break or spring vacation. Stuff the kids' stockings with guidebooks, maps and Disney memorabilia, and let them plan their excursion. You'll save money on holiday gifts, and they'll enjoy weeks of pleasure without becoming bored.
9. Look ahead to next year. If you came up short on cash this year, start an old-fashioned holiday-club account with a modern twist: an online savings account with a bank such as HSBC Direct or ING Direct. You can easily set up an automatic transfer from your checking account each month, earn a competitive rate of interest, and have a tidy sum when next holiday season rolls around. Customers who bank with Wells Fargo can track their savings goals with an online tool called My Savings Plan.
10. Count your pennies. A few weeks ago I was waiting for my sandwich in a sub shop around the corner from my office. When I bent down to pick up a dime from the floor, a gentleman standing next to me struck up a conversation. He told me he always picks up coins (even pennies) and tosses them into a big jar, along with the change from his pockets every day. That's the money he uses to buy his holiday gifts -- and every year it adds up to between $900 and $1,100.