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  • Writer's pictureHilary M.K. Poff | CFA

How to Budget During the Holiday Season

It might “be the most wonderful time of the year” but this holiday season Canadians are feeling anything but. Why? For many, the stress of stubbornly high inflation and rising interest rates—which makes it more expensive to borrow—is putting a damper on the holidays.

Simply put, everything is just too expensive.

And to be fair, it’s easy to get caught up in the excitement and merriment of the season and overspend. But without a proper budget, that overspending can end up costing you over the long run.

According to a recent report, 51% of Canadians who went holiday shopping in 2022 had to put those purchases on their credit cards. Fast forward one year and 25% are still trying to pay off that debt.

On top of that, because of high inflation and the increased cost of living cutting into our holiday budgets, an increasingly large number of Canadians are cutting back on their spending. Nearly 80% of Canadians have cited inflation and rising interest rates as having a “significant impact on their holiday spending.’

While 29% have said they will spend less this year on gifts, approximately half (49%) said they’ll spend the same.

Money worries have forced some to tighten their budgets, but a number of shoppers are turning to “buy now, pay later” to make their holidays bright. But that too comes with some serious issues.

“Buy now, pay later” or BNPL, allows shoppers to split the purchase into four or more installment payments over a set period of time. On the surface its an appealing option, these offers typically come with zero or minimal interest and do not require a hard credit check. Miss a payment though, and that purchase is hit with a huge interest rate penalty.

On top of that, it’s easy to get carried away with BNPL. The illusion of one inexpensive payment can lead to a lot more seemingly inexpensive purchases and mounting payments. This can result in buying more than you can afford.

Fortunately, it’s not too late to start planning and create a holiday budget that can make the season festive and help you avoid debt. Here are five ways you can save money during the holiday season.

Create a Holiday Budget

The first thing you need to do is create a budget. Make a list of people you’ll need to buy gifts for, including family, friends, your kids’ teacher, babysitter, and more. When working with a budget, think of how much you can spend on each person, not how much you want to.

Holiday expenses go beyond gifts too, expenses will also include decorations, a Christmas tree, lawn decorations etc.

If you plan to host a party, you’ll need to factor in the cost for food and drinks. If you’re attending a party, will you be expected to bring food or be part of a gift exchange?

Stick to It!

Expenses can add up fast. And to make the budget work, you need to stick to it. Before you start to spend, divide the budget into different categories. Knowing how much you have to spend on gifts, gas, or lawn ornaments will help you narrow down ideas before you hit the stores.

If the list seems too long and unmanageable, go through it again, and pare it down until it does work. It might feel upsetting to skip gifts or give less than you want to, but it’s easier than taking on debt or cutting on necessities.

Use Cash

If you live in Toronto or Mississauga, one great way to avoid credit card debt and sky-high interest rate payments is to use cash for as much as you can. Once you’ve figured out the holiday budget, take that much cash out of the bank. Once that money is gone, you’re officially done holiday shopping!

If you’re shopping online, use prepaid cards. This will limit your spending and keep you on budget.

Track Your Purchases

The best way to visualize your spending is to keep track of all the purchases. Bring your gift list and budget sheet with you whenever you go shopping. Look at the receipts and subtract that amount from the running Christmas budget. This way you can tell if you’re on budget or if you need to make adjustments.

Plan for Next Year

The sooner you start budgeting for the holidays the better. And the best way to plan for next year is to look at how much you spent this year.

After the holidays are done, add up what you spend and divide that number by 12. That will give you an idea on how much you need to set aside each month for next year.

If your budget was $1,200, you’ll need to set aside $100 every month. Even if you can’t afford to set aside a specific amount, set aside what you can. Any amount will help with the stress of budgeting for next year’s holidays.

Sharp Asset Management for Your Wealth Management Needs

It feels good to give nice gifts and throw a big holiday or New Year’s party, but that joy disappears when you’re left with the stress of having to pay for it. For those who live in Toronto or the GTA, the private wealth management professionals at Sharp Asset Management understand that comprehensive financial planning goes beyond growing your money for major expenses and retirement. It also includes vigorous budgeting, managing cash flow, and investing; it's about making decisions about your wealth so you can achieve your unique financial goals.

Sharp Asset Management is an independent wealth management firm that is 100% owner operated. Our retirement planning professionals are not affiliated with any financial institution, securities firm or mutual fund company. This means our investment decisions are unbiased.

All of our investment counsellors are charter financial analysts, the highest level of achievement, and have over 10 years of experiencing managing portfolios. To learn more about how Sharp Asset Management can help you with your holiday budgeting, contact us today.s

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