When I teach personal finance to law students, I always ask them to share their biggest money worries with me. I encourage them to think about long-term and short-term financial concerns.
I’ve taught for enough years now that I’ve come to expect a handful of common responses.
For example, long-term, law students are obviously worried about student loans. No surprise there.
Student loans can feel heavy and can be a major drag on our finances. That’s why paying off debt is a point of emphasis in my course.
Regarding short-term money worries, one response comes up more than any other: how to budget for inconsistent expenses that pop up throughout the year.
This worry is highlighted during the holiday season.
My students commonly worry about buying gifts during the holiday season.
I totally get it.
During the holiday season, we tend to spend more money than we do during other times of year. This can be very stressful. The challenge is coming up with a plan to handle this temporary increase in spending.
Think about it: throughout the rest of the year, people don’t tend to worry about buying gifts as part of their regular monthly budget.
That’s because we can typically handle the occasional birthday or anniversary gift within our Budget After Thinking.
Usually, staying on budget is as simple as making a quick tradeoff: buy a gift for my mom’s birthday instead of going out to dinner this weekend.
Sure, you have to “sacrifice” dinner out with your friends, but that’s a one-time decision that allows you to stay on budget and get a gift for mom.
However, things all change when it comes to spending during the holiday season.
The trade-off is not so simple as skipping one dinner out.
During the holiday season, we’re not just shopping for mom. We have significant others, kids, nieces/nephews, parents, and siblings.
And, don’t forget about gifts for your kids’ teachers, the babysitter, your assistant at the office, and anyone else who helps make your life easier throughout the year.
You get the idea.
Expenditures balloon during the holiday season. If you’re not prepared, this can cause a lot of unnecessary stress.
If this sounds familiar to you, don’t beat yourself up. Inconsistent expenses, like holiday shopping, are challenging for even the most dedicated budgeters.
The truth is there’s nothing worse than dedicating yourself to your budget for 11 months out of the year only to blow it during the holiday season.
Let’s not let that happen.
Today, I’ll share four tips to help you stay on budget and avoid common spending pitfalls during the holiday season.
First, let’s talk about budget busters.
Holiday Shopping Tip No. 1: Plan ahead for budget busters.
Holiday shopping is an example of inconsistent, but unavoidable, spending that I refer to as budget busters.
Generally, budget busters are any inconsistent expenditures, good or bad, that can derail your finances if not properly planned for.
Good budget busters might include trips, weddings, and of course, holiday shopping.
Bad budget busters include unexpected car repairs, home repairs, or medical expenses.
The key with budget busters is that you need to plan ahead.
Holiday shopping is the easiest budget buster to plan for- we know that these expenses are going to occur every year from the end of November (Black Friday) through New Year’s Eve.
With the proper planning, you can handle holiday shopping so it doesn’t become a budget buster for you.
Here’s how you do it.
Plan for budget busters as line items in your Budget After Thinking.
I recommend including two separate line items for budget busters in your Budget After Thinking.
Have one line item in your Now Money category (bad budget busters) and one line item in your Life Money category (good budget busters).
Holiday shopping is part of your Life Money category.
You likely won’t end up spending your budget buster money every month. That’s a good thing.
For example, let’s say you allocate $200 per month to your Life Money budget buster category.
By the end of the year, if you haven’t spent the money elsewhere, you’ll have $2,400 saved up to help you cover holiday shopping expenses.
The key is that each month that you don’t spend your budget buster money, transfer it to your savings account so it’s there when you need it, like when it’s time to buy holiday gifts.
This is an important step. You don’t want to let that hard-earned money sit in your checking account. Those dollars will disappear long before Black Friday.
By transferring them to savings, those dollars will be at your disposal when needed.
What kind of savings account am I talking about?
Be sure to have a separate savings account for budget busters. It’s always a good idea to keep your savings separate from your everyday spending.
Ideally, you should open up a savings account at a different bank than your checking account. This helps isolate those funds so those dollars don’t disappear and are available come holiday season.
There are lots of good options for high-yield, online savings accounts. I used to bank with CapitalOne, but then they burned me and thousands of other customers. Never again.
I now use BMO Alto for my savings account. They offer a good interest rate and a no-frills product. Very simple and straightforward.
Come holiday season, I can use the budget buster money I had saved throughout the year in my BMO Alto account to cover me if I overspend.
Holiday Shopping Tip No. 2: Cut back in November and January.
If you overspend in December, don’t get discouraged and give up. Before all your hard budgeting work goes to waste, take the month of January to course correct.
For example, if you overspent by $300 in December, make it a priority to underspend by $300 in January.
Even better is if you can also intentionally underspend in November anticipating higher spending in December.
For instance, if you want to have $500 more to spend in December, cut back $250 of spending in November and another $250 in January.
The key is to make sure you address the overspending issue in November and January and not let too much more time go by without course-correcting. If you wait, you’ll just never get around to addressing it.
Is this easier said than done?
Well, sure. It’s always easier to say you’re going to do something. The hard part is following through. It takes discipline.
What will drive that discipline?
Your ultimate life motivations that we talk so much about (and will always continue to talk about). Without that clear vision of your ideal life in front of you, no budget will ever last.
If your ultimate life motivations are not important enough for you to cut back on spending for a month or two, you need to revisit those motivations.
Tip No. 3: Make a game out of it, like the $500 Challenge.
If you go overboard with holiday shopping in December, don’t get down on yourself. You’re human. It happens.
In January, it’s time to play a game that I call “The $500 Challenge.”
My wife and I started playing The $500 Challenge years ago. The game was simple. Each of us had to limit our Life Money for the month to just $500. Whoever spent the least that month, won the game.
I’ve never won the game. My wife is… competitive. I cope by lying to myself that she wins because I enjoy paying on date nights.
We’ve played this game many times to course-correct after a high spending month.
January is the perfect time of year for this game since the holidays in December often result in overspending.
The $500 Challenge has many benefits.
When we succeeded playing The $500 Challenge, we’d be right back on track for our goals.
Even if we couldn’t quite stay under $500 (never an issue for my wife), this game still reminded us to prioritize the experiences and things in life that truly mattered to us.
My favorite part of the game was it forced us to get creative with our nights out. One of my favorite date nights was a product of the $500 challenge.
We had just moved to our new neighborhood. It was a Friday night. People were out and the city was bumping, per usual in summertime Chicago. We set out for a walk to explore with only one rule: we had $20 to spend or less on dinner for two.
We weren’t going to waste that money on an Uber, so we just started walking. A couple miles later, having learned all about our new surroundings, we ended up at a casual restaurant we had never been to.
We ordered a plate of nachos to share off the happy hour menu. We even had enough money left for one of us to wash it down with a cold beer. The nachos were great and the vibe was perfect. The check, with tip? 19 bucks.
We walked home, which helped digest our dinner, and went to bed feeling light in the belly and heavy in the wallet.
The $500 Challenge is the perfect way to get back on track in January after overspending in December.
Tip No. 4: Buy it on Black Friday, but only if it’s on sale.
About 10 years ago, my mom bought me a jacket for a birthday present. It was the exact jacket I wanted. How did she know, I asked her.
“You mentioned it when we were downtown four months ago.”
Four months ago!
I shouldn’t have been surprised. My mom has one of those steel trap memories.
If you only met her for five minutes and then saw her again two years later, don’t be surprised when she asks about your consulting gig, your trip to New Orleans, and that blue dress that she really liked.
I learned from my mom’s gift strategy and now apply it to holiday shopping. I don’t have her memory, but I do have a phone with a notes function.
When my kids see something that they want from Santa, I make a note in my phone. I do the same thing when my wife or I see something that we might want.
On Black Friday, I pull out my list and start online shopping.
Many of the items I could have purchased earlier are on sale during Black Friday. If it’s not on sale, I can decide if I still want to buy it. Most times, I pass on the full-price items.
The benefit of this strategy is that I can sit down with my laptop in a controlled environment knowing that I have a certain amount to spend. Once I hit my spending limit, I stop shopping.
By waiting until Black Friday, I can buy more gifts for the same amount of money.
I can also take my time to think about whether I still want that item. More times than not, I no longer want whatever it was that tempted me in the moment.
Compare this strategy to randomly buying full-priced gifts throughout the month where it’s difficult to even know how much you’re spending.
By keeping a list and waiting to shop until Black Friday, you can save money, get more gifts, and stay on budget.
Don’t let holiday shopping stress you out.
With the proper planning, you don’t have to let holiday shopping stress you out.
Like with most personal finance concepts, the key is to think and make intentional choices.
When you put a little effort in ahead of time, you can stay on budget and continue progressing towards your life goals.
Do you plan ahead for holiday shopping?
What are your favorite strategies to say on budget?
Let us know in the comments below.
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