It's the time of year for Christmas decorations, singing carols and spending way too much as the spirit of the season takes over our wallets. On average, Singaporeans are expected to shell out over $1,000 this holiday season—leaving large credit card bills or empty bank accounts come January.
But, it doesn't have to be that way. ValueChampion asked a handful of financial planners for their best advice to keep holidays from turning into a financial burden.
Make a comprehensive budget
While this may seem like an obvious step, a lot of people actually don't plan out how much they are going to spend in a given holiday season. However, preparing a comprehensive budget is a key step in keeping your spending in check. By writing down each person you plan to shop for and including a dollar amount for each, you can properly budget ahead of time and ensure you don't spend more than you can afford. Usually, it's smart to include a cushion for extra gifts in case you overlook someone (i.e. children's teachers) or want to reciprocate for a gift you unexpectedly received.
The list should be all-inclusive, not just confined to money you'll spend on gifts. For example, there are other costs such as wrapping and shipping, decorations, greeting cards, charitable donations and party attire that are often hidden or forgotten. You should also add extra buffer to your usual food budgets, since you will likely end up attending more festivities and dining out more often.
Consider an envelope system
Even after you've created a detailed budget, it could be difficult to staying within it. If you are one of these people, trying the envelope system could be a great solution to self-control (or lack there of). The envelope system is a rather simple mechanism where you put the exact amount of cash that you plan to spend on gifts and other holiday expenditures in an envelope. You could also write the budget list on the envelope, and cross them out one by one as the expenditure occurs. Once the money is spent, you're done. By forcing yourself to commit to a pre-planned budget, the envelope system eliminates any surprises a credit card may offer when you open your statement in January.
You can still use the envelope system even if you want to use your credit cards for holiday shopping to reap rewards points. For example, you can write the amount of money you want to spend on the outside of the envelope. Then, you can place your receipt in the envelope whenever you make a purchase, subtract what you spent from the total gift allotment and write what you left to spend on the envelope.
Get creative with extended family or large groups
When there are more than a few loved ones to shop for, it can be financially gruesome to get a gift for each person. Instead, there are many creative ways to protect your wallet while keeping everyone happy. To help everyone's wallets, we've come up with a few strategies you can consider:
- Establish a maximum spending amount for each person.
- Only buy gifts for those under 18.
- Secret Santa: Draw a name and buy only that person a gift (with a cost limit).
- Play a gift-exchange game such as White Elephant or Yankee Swap.
- Chip in for a one big gift for each family.
By setting rules that are clear and fair, these strategies can ensure everyone gets a gift while limiting how much any particular member of the group needs to spend. This can also be applicable to couples.
Time it right
If you're putting your holiday spending on your credit card, you could plan your shopping to give yourself the most possible time to pay off your bills. For example, you can make large purchases the day after your card's closing date, the last day purchases are added to that month's bill. By doing so, you can give your self the entire next billing cycle before the payment is due to set aside enough money to pay off the entire balance.
If you absolutely have to overspend...
If you absolutely have to spend more than you can afford for some urgent needs this holiday season, you should never put all of that balance on your credit card. Because credit cards in Singapore charge at least 25% of interest on your unpaid balance, your credit card debt can soon spiral out of control if you leave a large balance behind. Instead, you can consider getting a personal loan to finance your large, unavoidable purchases that are beyond your budget. Some of these loans, like HSBC's, charge less than half of what credit cards charge, and provide an ample length of time to repay your loan to minimise the financial burden of your purchase. If you already have built a large, unpaid credit card balance, you can also consider getting a debt consolidation plan, which is a specialised personal loan that is specifically designed for repaying your other personal debt.