How to budget for the holidays

Dear Bruce

I overspend at Christmas every single year. How much should I budget for the holidays?
— Julia Graham, Burnaby, B.C.

Dear Julia,

Every family’s holiday budget is different. What you want to spend over the holidays, and what you have in terms of disposable income and pre-existing debt, are unique to you. I’ve found that the amount of your holiday budget matters less than just sticking to it — simply being conscious of your spending makes an enormous difference. That said, create a budget that’s as inclusive as possible: gifts, of course, plus food and liquor if you’re entertaining, gas if you’ll be driving to visit far-flung family members, donations to charity, tickets to holiday shows and maybe even some money to pay for a new outfit if you absolutely need one for the big holiday party. Total it, then decide what you could add or subtract to get to a number you’re comfortable with. Plan ahead to ensure you’ll have that amount in your bank account when the bills arrive in the new year. If you know you’ll be carrying debt, figure out how you’re going to pay it off well before the next holiday season rolls around. And, unless you put yourself on your gift-giving list, watch out for the “one for you, one for me” pitfall, no matter how tempting the sale is.

Dear Bruce

I backed our van into a lamp post a few months back and had to put $8,000 on my credit card for repairs. What is the best plan to pay off the debt quickly and avoid high-cost interest charges?
— Vivienne West, Calgary

Dear Vivienne,

Sorry about your van — but good for you for getting on top of this after a few months, instead of a few years. I would start with a reality check: Create a chart that lists each lender, outstanding amount, interest rate, due date and minimum payment for all your debts, then total it (see chart below). Next, choose a payment approach. Mathematically, your best option is to pay off the highest-rate card first, and pay just the minimum on the others. But some people choose the “debt snowball” method, which is to pay off the card with the lowest balance first to give them a feeling of accomplishment. Next, you need to devise a plan for how you will cut spending and/or increase income to eliminate the debt. Be specific: Are you going to transfer the balance to a lower-rate line of credit, cut eating out for three months or work extra shifts on weekends? Will those things do the trick by the deadline you set? Write the plan down on paper, then share it with at least one other person to give yourself some accountability. Best of luck.

Dear Bruce

I want to switch my current no-frills credit card to one that rewards me with each purchase, especially since the holiday-spending season is here. I plan to pay off my purchases entirely each month. Which rewards card offers the best value?

— Anna Fraser, Halifax

Dear Anna,

My five-year-old, Abby, loves the bunny stamp she gets at gymnastics — a nice little reward for a great class. If you pay off your credit card in full every month, you deserve a reward too. MoneySense magazine has a simple online credit-card selector tool to help you find the one that’s best for you. First, the tool will ask you a few questions, like whether you would rather have cash back on your purchases, retail rewards at a particular chain or travel points. Then it’ll ask how much you spend every month on things like groceries, restaurants, clothing and gas. Finally, from your answers, it will generate a list of cards for you to choose from (based on an exhaustive analysis of each rewards program). Before you make a selection, do a gut check. For example, if you don’t fly the airline or shop at the store associated with the card, take it off the list. You will then be left with a curated list of cards best suited to your lifestyle. But remember, rewards credit cards, like gymnastics, can be dangerous, so take the proper precautions to reduce your risk of getting hurt.

Bruce Sellery is a personal finance expert and author of the bestselling book The Moolala Guide to Rockin’ Your RRSP. He’s a columnist for MoneySense magazine and a regular guest on Cityline and the Lang & O’Leary Exchange. Read more at moolala.ca.

Have a question about your finances? Email Bruce at letters@chatelaine.rogers.com

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