Start Planning Now To Avoid That Holiday Debt

If you listen carefully, you can already hear the subtle sound of sleigh bells off in the distance – just above the cheerful voices of tellers upselling stocking stuffers at the till.

Ready or not, Christmas is right around the corner.

I know what you're thinking: It's only August. It's too early to talk about planning for the holidays!

But how often do you find yourself working through your December budget only to realize you're about to come up short? How many times have you promised a debt free Christmas, only to lament an overinflated credit card bill come January?

You're not alone. It happens to people all the time. But this year can be different. This year will be different. If you start planning now!

Consider Your Irregular Expenses

You're probably not surprised to learn money and debt struggles consistently top Canadians' lists of major stressors. Nor that the pressure tends to get worse during the holiday season. But it doesn't have to be that way.

When I work with clients to help them with budgeting, we usually begin by looking at two kinds of expenses:

Regular Expenses cover everything you expect to see from month to month. This includes things like rent or mortgage, utilities, groceries, fuel and debt payments. These are generally easy to plan for because you see them every month and have a consistent history of how much they should cost.

Irregular expenses generally seem less predictable. But that's just because you're not used to planning for them yet. These are things that usually only come up once or twice a year and therefore don't fit neatly into a monthly budget. Think back to school clothes, vacations, oil changes – and yes, the holidays.

Most people figure out their regular expenses relatively quickly. As you might guess, it's the irregular costs that cause the most stress and uncertainty. Once you develop a system to prepare for those unanticipated costs before they occur, budgeting becomes immeasurably easier.

Working Backwards

Imagine you typically spend $600 every Christmas on things like gifts, food, cards and clothing for parties. If you left paying for all these things until the beginning of December, it will take a sizable bite out of your monthly budget. You'd have no choice but to use credit to make it all work.

Instead, what if you set aside $50 every month in a separate bank account every time you got paid and specifically earmarked that money for holiday spending? That way come Christmas, you already have a pool of funds to draw from.

This is the ideal way to plan for any irregular expense. Work ahead, anticipate what costs might await you in the near and distant future, then put a small amount of money away every pay cheque to afford them when the time comes. To jumpstart this process, we have a helpful spreadsheet on our website. It will help you brainstorm the irregular expenses unique to your lifestyle and plan for them in your regular monthly budget.

Recovering from Past Holidays

If you still have holiday debt from last year that you're trying to pay off, here's a helpful process to get you moving in the right direction:

Step 1: Write down all the creditors you owe money to and how much you owe each of them.

Step 2: Figure out how much of your current monthly budget you can set aside for debt payments. Don't forget to factor in the money you're setting aside for irregular expenses. Be realistic and ensure you still have enough money to maintain a reasonable quality of life.

Step 3: Choose the right payment strategy for you. Sometimes it's paying down the highest interest rate debt first. Other times it's the smallest debt. This blog post might help you choose which will work in your situation.

Free Confidential Consultation

If you're experiencing completely unmanageable debt due to holiday overspending or other reasons, MNP can help. During a Free Confidential Consultation, a Licensed Insolvency Trustee will review your entire financial situation and help you find options to get out of debt for good. This may include a Life-Changing Debt Solution such as a Consumer Proposal or Bankruptcy, or other debt reduction alternatives.

Whatever it is that will put you on track to the financial fresh start you deserve, your Licensed Insolvency Trustee will help you make the best choice given your unique situation and goals. Call us today to get a start on the path to defeating debt for good.