My family and I celebrate the Jewish holiday of Chanukah at this time of year and I plan to stick to the time-honoured tradition of giving my children simple gifts such as books, crayons, and chocolate coins. My five-year-old daughter, who is asking for a Nintendo DS, may not appreciate the tradition as much as I do.
Still, I am optimistic that she will learn that holidays are less about spending money on presents than spending time together. To me, avoiding the debt that often accompanies holidays is one of the best gifts I can give them.
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I'm not the only one trying to reign in the holiday budget. Nearly half of all Canadians are planning to spend less this year than last and one in five Canadians are not buying any gifts at all, according to RBC's recent Canadian Consumer Outlook report.
As this holiday season kicks off, you may already be worried about a credit card hangover come January. Many of us tend to spend more than we planned as we get into the spirit of the holidays or find good deals that are too hard to pass up. But what is the right amount to spend at this time of year?
There's a rule of thumb, suggested by several personal finance experts, that you should spend no more than 1.5 per cent of your gross income. For a family earning $100,000, that's $1,500, which is close to the typical holiday budget.
RBC's survey found that Canadians, on average, expect to spend $1,218 on holiday purchases, including gifts, decorations and entertaining. It may seem like a lot of money to spend on a holiday, but the expenses accumulate quickly when you have a long gift list and host gatherings with family and friends.
If you have saved up for the holidays and made it a part of your planned spending, you should enjoy the fruits of your labours. The issue for many, though, is that holiday spending spins out of control, especially when credit cards are involved. It's all too easy to swipe the plastic at the mall and put off worries about debt until the statement comes in the mail. If you are trying to be a more disciplined spender this season, try moving to cash.
I admit that I rarely carry cash in my wallet and often find myself scrounging for change at the bottom of my bag for a coffee. I use my credit card for purchases large and small, as it lets me accumulate air miles for every purchase. My family has travelled far and wide on free plane tickets. It's a strategy that works since we pay off our credit card balance in full each month.
Still, I find that there's an implicit disconnect between what I earn and what I spend when I use a credit card. The act of spending simply becomes less tangible and it's easy to quickly commit to more than I expected.
Whatever your holiday budget may be, withdraw that amount in cash and store it in envelopes marked for gifts, food and alcohol, and decorations. When the cash is gone, your holiday shopping is done.