I don't mean to be an alarmist, but I thought you should know that the holidays come every year—whether you’re ready or not. I understand that the magic of the season begins to fades as soon we as start discussing how much we spent on the holidays. But on the bright side, now is the perfect time to plan for the 2009 holiday season.
Holiday expenses are periodic, meaning they are not part of regular monthly expenditures. In that regard, they join the ranks of other expenses such as auto registrations, vacations, and taxes (coming soon!) Often, we know when these events will occur, but still fail to plan for them. Using credit to extend your monthly income is one sign of pending financial trouble. Fortunately, there are ways to avoid this scenario in 2009:
-Determine what you spent on the holidays in 2008. Assume that you will spend slightly more than that amount in 2009.
-Don’t hide expenses! Just because you don’t list an expense doesn’t mean you won’t have to spend money on it. Don’t forget things like gift wrap, babysitting, new clothing, postage, and food.
-Divide the total amount of money you plan to spend on the 2009 holidays by 12 and save that amount each month. Yes, you do really need to start in January.
-Remember the old Christmas Clubs? Create your own by designating a savings account for this purpose may help to organize this process. Check with your financial institution, you may even be able to have the amount automatically transferred.
-To accelerate your savings schedule, resolve to include all of your "windfall" money. This “free money” includes increased income from a pay increase, birthday gifts, insurance settlements, escrow overages, tax refunds, and inheritances.
Finally, set a goal for paying off any 2008 holiday debt in a reasonable amount of time. Keep in mind that a $1,000 charge can take more than 12 years to pay-off if your interest rate is 18 percent and you make only the minimum monthly payment. (Try this: Plug in your own numbers at Bankrate.com.)