The dog days of summer aren’t yet over, but it’s not too early to start thinking about the holiday season – at least not according to the National Foundation for Credit Counseling (NFCC).
With the average person projected to spend about $800 on gifts and other holiday-related purchases, the NFCC is issuing a consumer alert: if you don’t save up for the holidays, you could end up spending far more than that.
If folks put $1,000 in charges on their credit card – the go-to-strategy in cases of insufficient spending cash – and pay only the minimum amount due with an APR of 18%, the balance won’t be paid off for 12 years. Furthermore, they will end up paying a total of $2,353, rather than the $1,000 they originally spent.
The way to avoid this outcome is to start saving now. The NFCC recommends these five strategies for putting holiday money away before the season is upon us:
Cut back on spending. Look for small ways to save on everyday expenses. Trimming just $1 per day from your daily expenses will net you an extra $150 over the next five months.
Adjust your W-4 withholding to minimize your tax refund. Many people have too much money taken out of their paychecks, resulting in a nice refund on April 15. The average tax refund has been close to $3,000 in recent years. However, getting that money back before the end of the year will add to the amount available for holiday spending.
Try to shave $10 per month off 10 spending categories. Some expenses are fixed: rent, mortgage and car payments. But others, like groceries, clothes, gas and entertainment, can be minimized with some small lifestyle adjustments. Save $100 each month when you spend $10 less in 10 budget categories.
Sell things you no longer need. If you have items in good condition that others might want for their own holiday shopping, everyone wins when you sell them.
Open a holiday savings account. It’s simple to open a separate savings account at the financial institution you already bank with. Keep your holiday savings in one place so funds don’t get mixed up with everyday spending money.
Gail Cunningham, NFCC spokesperson, recommends that people rethink their gift-giving strategies this year – especially if they still haven’t paid off last year’s holiday debt. “It makes no financial sense to pile new debt on top of old,” says Cunningham. “Kindness and experiences are meaningful substitutes for purchased gifts, and are remembered long after the wrapping paper and bows have been discarded.”