‘Tis the Season...to Spend!

Key Statistics on Holiday Spending (2020):

> 2020 Holiday spending was approximately $1,276/person

> 37% set aside money for presents => Roughly 2 of 3 set no money aside (no budget!)

> 55% of Canadian Millennials exceeded their holiday budget in 2020

Source: Review Moose

With the calendar turning to November, the sound of Christmas Carols are starting to hit the stores, and festive plans are being made. While it is “the most wonderful time of the year”, it is typically a time where we spend a significant amount of discretionary income. Per an article on 2020 spending trends, an average of $1,276 is spent per person on holiday gifts and entertaining. For context, this equates to almost 2.5% of the average Canadian household income for a year! Even more concerning, almost 2 in 3 Canadians set no money aside, and given that only 25% of Canadians typically pay off their credit card balance in full each month - this spending in all likelihood, translates to more debt. This added date takes even more of your hard earned money out of your wallet in the form of additional interest! So...how do we manage Christmas spending and keep money in our own wallets?

There are 3 different strategies for Christmas and Holiday spending which we will explore: 1) Save in Advance; 2) Spend, Spend, Spend…and Pay Later; 3) Reduced Spending

Save in Advance

The most “grown-up” approach would be to save in advance and set aside funds for holiday gifts. While it takes discipline and commitment, this approach is the most prudent and ensures funds are set aside appropriately and spending managed to not increase debt.  Naturally, you may be asking: What if I see a great gift that is outside of, or more than my budget? At least in this case, you have a budget and are knowingly making a conscious decision to make the purchase which you can adjust for in future budgets. Without a budget, this spending is more likely to move considerably higher, as there is no benchmark for comparison, and therefore no control measure in place.

Spend, Spend, Spend....Pay Later

This may be the “most fun” approach, and who doesn’t love a big binge shopping experience? The downside is that when you spend, spend, spend, with no money set aside or plan in place, the natural outcome is that your credit card debt would be rung up. With that, interest rates of anywhere between 18 and 28% would be added to the bill. Even if the added credit card balance is paid off in four months (which statistics show is on the lower end), that would still amount to an additional $100 in interest cost spending for the average Canadian. I don’t know about you...but I rather spend that $100 dining out at a nice restaurant, or on a new purchase, than on making credit card companies rich!! For additional information on the impact of credit card interest on your holiday bills, click the following link to go to the article “The $550 dollar mistake”.

Reduced Spending – Online shopping, DIY Gifts

The third approach may be the most fun for the crafty folks out there, or those who love a good bargain hunt. Being able to explore and compare prices across multiple sites while doing online shopping would be a great option to help reduce the spending amount – who doesn’t love a good deal, right! If you are shopping online, a google search for coupons issued by the manufacturer (or others) could be a great way to lower the price! For those who are more creative, making a few gifts, or adding some holiday baking, would also be a great approach to help reduce the total spending amount. This could also be an opportunity for those with children to have a bit more fun, while creating a meaningful heartfelt gift for the receiver. Unfortunately, if we focus too heavily on this reduced spending strategy, we may end up being a bit too “frugal” and get the perception of not being so “giving” among our family and friends. If you decide as a group within your friends and family to set a spending limit on gifts, or play gift exchange games such as “secret santa” – you will naturally reduce your spending and avoid the “frugal” tag.

Realistically, if we are honest with ourselves, we have all used some of each of the above strategies. The key to managing spending appropriately, keeping our money in our wallet, is to weight our spending more heavily on 1 (Save in Advance, using a budget), with a healthy dose of 3 (Reduce Spending through online bargain shopping, spending limits and DIY gifts) and a sprinkling of 2 (Splurging) mixed in.

So, this leads to the final question...why do we have such a hard time saving in advance when we know it’s the right thing to do? We need to build the discipline of budgeting into our monthly rhythms and holiday routine, rather than trying to manage a “spike” in spending in the final month of the year. It has been proven – building a budget is the best way to set goals and keep you on track to meet them! Don’t fly alone, talk to a financial coach today – you can book a FREE, no obligation consultation at www.hopefinancialsolutions.ca, we’d be glad to speak with you and get you started on your journey to financial freedom today!