I remember a clip from Financial Peace University (FPU) where Dave describes this guy sitting with his family, eating Thanksgiving dinner when he suddenly starts gagging because he realizes that this year, Christmas is in December. It’s obviously tongue in cheek but the point is that family guy is gagging because didn’t save any money throughout the year for Christmas so he will most likely do what the majority of American families do every Christmas. Pull out the plastic cards from their respective wallets and charge it. On average, American families racked up $1,054 in credit card debt last Christmas and 10% of those families stated they could only afford to make the minimum payments. Imagine those families and the anxiety they must feel when they walk to their mailbox knowing that at some point the credit card bill is going to show up. How apprehensive they must feel when the bill is actually opened and they see the balance. I know the feeling all too well and it’s a feeling that I will never forget.
So how can your family avoid the pitfalls of holiday credit card debt and ensure that the holidays do not create financial anxiety? The answer is deceptively simple……budget for Christmas. Dream with me here…….What if someone gave you an envelope that contained ten $100 dollars bills and they told you that you can spend it for Christmas any way you wish. Maybe you buy gifts for your family and loved ones or give some to those in need. You get to choose how you want to spend it! That’s kind of like what it feels like when you budget for Christmas throughout the year. When December rolls around you have an envelope or a Christmas bank account full of cash. You get to spend it however you wish and you completely eliminate the anxiety of wondering how you’re going to pay for it.
The first thing you need to come up with is the amount that you want to budget. Sit down with your spouse or accountability partner and figure out how much you want to save for Christmas. A good rule of thumb is that your total Christmas spending should not be more than 1% or your gross annual household income. The median household income in America is now around $70,000. If that represents your family than your Christmas budget should not be more than $700. To be honest, I’m not big on percentages. My logic tells me that I want to save as much as possible and spend as little as possible without being Scrooge. The great thing about it is that you get to decide what you spend on Christmas. If you want to use 1% of your gross annual household income as a benchmark then I think that is great. If you want to spend a little more within reason then I also think that is great, as long as you can pay cash for it. That is the key and is the whole purpose behind budgeting for Christmas. We want to eliminate the financial anxiety from Christmas spending.
Our household Christmas budget is $1,200. I really don’t know how or why we came up with that number. It was probably because it represented Christmas savings of $100 per month. With four children growing up in our household, we spent $200 per child and the rest went to other expenditures like wrapping paper, Christmas cards, baking supplies for Christmas cookies, food for the Christmas party and gifts for other people. It’s these types of expenses that can really blow your budget. I don’t know about you but when I thing of a Christmas budget, I think of gifts. I don’t necessarily think of all the little things like the cost of Christmas cards, stamps to mail the Christmas cards, baking supplies, name tags for gifts, a strand of outdoor lights to replace one that no longer works etc. These are all expenses that you wouldn’t have in a normal month, so be sure to plan for them. If you have no idea what you normally spend for Christmas then start tracking your spending this year. Just simply have a notepad and every time you purchase something that is Christmas related, write it down. I think you’ll be surprised at how much you actually spend and it will help you develop your budget for the next year.
How do we choose to save for Christmas? We have a Christmas envelope. Yes, we literally have an envelope labeled for Christmas and every month we put $100 into it. When December rolls around Maria takes the envelope and deposits the cash into the checking account after she has purchased items online. She may choose to pay cash for other items purchased directly from the store. This may or may not work for you but it has worked for us for years and it’s why we continue to utilize this method. It does take a certain amount of discipline to have an envelope full of cash lying around and it may be tempting to use it. Remember, it’s your Christmas fund, not the pizza fund. Some banks offer Christmas Clubs which is a separate account used for Christmas saving. It may prove to be more convenient to save this way because you may have the option to transfer money directly between accounts. I have found, especially when it comes to self-discipline, convenience isn’t always the best option…..at least for me. But, this is another opportunity where you get to figure out what works for you and implement it.
The one thing that I want to add is that your budget only works if you stay within it. If you saved a Christmas budget of $500 and then spent $1500, you missed the point. You are making a decision of how much you are going to spend. You are effectively drawing a line in the sand and stating that I am not going over this line. When you do this and stick to it, it changes you. You are taking control of your life and being intentional. You are stating that I am not going to spend a dollar more on this item so I can invest this dollar in my children’s education or my retirement plan.
When we first started budgeting for Christmas we realized that we were spending a lot of money on gifts for family members other than our children. We had to make a difficult decision. We couldn’t afford to get gifts for everyone so we mentioned this to our relatives during our family Thanksgiving dinner. It’s funny but some of our relatives were in the same position we were and felt the same way. The reality is that we’d love to get gifts for all of our relatives and loved ones but we just couldn’t afford it. We came up with a solution that we still practice. At our annual Thanksgiving dinner we each fill out a Christmas wish list that includes our name and up to five gifts that we want that cost no more than $35.00. We contact our relatives that live out of state or weren’t able to attend and include them as well. We then put all of the wish lists in a hat and we each draw one name and purchase a gift for that person only. This didn’t please everyone initially but it has become standard practice and is now accepted. Problem solved!
One of the difficulties of being in a blended family is the constant temptation to purchase things thinking that it will make your children happier. Our children had all gone through a separation, then divorce and then finally a remarriage with other children being brought into the picture. In the case of my children, they left the only home they’d known and moved into a new house which they had to share with a new stepmother and two step-siblings. For Maria’s girls, they now had to share their home with a new stepfather and two step-siblings. Not only did they have to learn to share their home but they also had to learn to share their mother. Their mother’s attention could not be focused solely on them and had to be shared with the new members of the family. My children also had to compete for my attention. I think we’d be putting it very mildly to state that all of us went through a severe life altering experience. And it was hard……..really, really hard…….for all of us. I believe in situations like this where you are aware that your kids are going through a rough time or an adjustment, it is easy to overspend or purchase things for them as a form of medicating. You can fool yourself into thinking that they’ll be happier if only they have an I-Phone X or that they deserve one because they’ve been through a lot. Christmas spending is no exception. It is really easy to overspend but you have to resist the temptation and stick to the amount you’ve budgeted.
I realize now that the most important thing that I can give to my children is my time. Time is our greatest resource and it should be used wisely. I reflect on so many things that I wish I could have done better as a parent. Being in debt really stole my time. I had to spend so many extra hours working to pay it off and it left me feeling overwhelmed, anxious and exhausted. Perhaps I could have listened more attentively when my children were trying to talk to me? Perhaps I would have had more energy to spend time doing things with them that they wanted to do or were interested in? There is no amount of money that you can spend on your children purchasing Christmas gifts that will be as valuable to them as your time. Debt really is a thief. Develop a Christmas budget and stick to it. Don’t let debt steal your time and your future.
After researching some articles when gathering data for this post, I now realize that our Christmas budget was a little high in comparison to the national average. However, we budgeted for Christmas throughout the year and paid cash for all of the expenses. We didn’t have to worry about how we were going to pay the bills come January or February. However, I may have to call for an emergency budget committee meeting with Maria and propose some amendments.