A budget review might seem to be an extreme approach to holiday expenses. However, you need to make sure that your expenses at the end of the month will not put you in the red and give you a bad start for the new year. You could be staring at a huge credit card bill or a depleted bank account at the beginning of a new year. If this happens, you are already at a disadvantage when it comes to your finances.
You do not want to remember the holidays as that one time in the year where you blow up your finances and undo a year’s worth of careful spending and planning. At the beginning of the year, you could have laid out plans for how much you need to save and earn and even looked for side gigs to raise extra money for your short and long-term goals.
This is one of the importance of a budget review for the holidays, it will help you stay on track and allow you to keep your finances intact. It is not easy to gain any headway with your finances as it takes some time to see results. What is more challenging is that ruining all your hard work is pretty easy and you sometimes do not even know you are damaging it already.
Preparing for the holidays is one of the culprits to a year’s worth of hard work going down the drain. It is easy to lose track of all the work you have put in and start charging on your card for gifts and travel. The holiday spirit and seeing a lot of other people around you doing the same thing can be enough to make you spend money you do not have. CNBC shares that Americans still carry debt from the previous year’s holiday expenses. Here are a few things to help you manage your holiday spending.
Look at your holiday expenses from last year
The first thing you need to conduct a budget review is to look up your last year’s expenses. This will be a great baseline for you to work on since you already went through a similar expense pattern in the past years. You already spent almost the same things last year making it a lot less challenging to conduct a review of your finances for the holidays.
With that list on hand, take a look not only at your total expenses but the details in them as well. The holidays will yield a lot of different types of costs. There could be a few items where you bought a gift for a special person in your life. If you decide to spend the holidays with family and friends somewhere else, you would have travel expenses. The holidays also mean social gatherings and you could either be hosting it or bringing in something to add to the party.
Expenses from last year will not give you an accurate number on what you will be spending on this year’s holiday costs. However, it can give you an idea of a ballpark figure how much you could be spending for this year. This way, it will not be much of a surprise to you and you now have an idea how much you might need for this year.
Separate your holiday budget from your regular household expenses
A budget review will give you an idea of how much you need for holiday expenses. Once you have that amount, it is important that you create a separate budgeting system for it away from your regular household expenses. Even during the holiday season, your regular expenses will not cease to exist and you still need to make those payments.
If you combine the two sets of expenses, it will be a lot more challenging for you to figure out which one is for what. You might start to use money set aside for mortgage payment and start buying gifts with it. Your budget for credit card payment might be used to pay for hosting parties. When these mistakes happen, you will find yourself coming up short on your monthly financial obligations.
Creating a separate budget for the holidays will be a big help in making sure that you do not overstep your reach and use other funds to make the holidays a lot more memorable. It will certainly leave a lasting memory that will haunt you with debt over the next few months. It can force you to start the new year with much more debt than you can handle.
A budget review will tell you how much you need for this year’s expenses
This is the part where you start using previous expenses to mold your current budget. You now know that creating a separate budget for your holiday expenses is a crucial part of the process. With the list from last year on hand, start adding, removing, and adjusting the amounts on that list to reflect your current situation.
There could be people in your list from last year who could have moved to another place or even to another country. You can actually change what you will give them from an actual gift to an inexpensive e-greeting. You might have a nephew or niece who was born this year and you need to add them to your list.
If you plan ahead of time, you can also look at how you can personalize your gifts for the people on your holiday list. Doing so can help you save on costs from having to buy expensive items off the shelves in the mall. If you have a talent in painting, start creating portraits of the people you want to give gifts to. This can be a great gift they can hang at home or even in the office. It will also not cost as much compared to buying a gift.
Decide the most advantageous mode of payment
This means figuring out the most efficient and rewarding method of payment you will for your holiday expenses. This is usually a toss-up between using cash or your credit card. Both have their own set of pros and cons and you have to find out which one will better suit your needs. You need to be smart spender when it comes to holiday expenses and after a budget review, choose your method of payment.
Using cash can help you budget better since it forces you to work with what you have. You cannot go over the amount of cash you have with you since it will be impossible to buy anything else. Knowing this, you will be carefully watching your purchases and expenses over the holidays to ensure that you have enough to cover everything in your list.
You can also use your credit cards provided you can control your expenses and not go over budget. One of the many benefits of using your cards is that you do not have to carry cash with you. The holiday dash can bring out a lot of people and losing personal belongings such as your wallet can happen. You can also take advantage of the rewards and benefits your card gives you such as free hotel stay when you use a card to book your airline ticket.
A budget review just for the holidays might seem too much of a trouble but you need to make sure that you are not going to blow off all your money at the end of the year.