You know what they say: Nothing is certain in life except for death, taxes … and the pressure to overspend during the holidays.
Oh, wait. That's not how the maxim goes — although maybe it should.
Because, sure enough, the season of financial temptations is right around the corner, which means it's prime time to figure out whether your budget is prepped to weather the upcoming spending storm.
Now, don't go into a panic — there's a simple strategy you can adopt now to help you sidestep those common holiday budgeting bombs, whether it's the last-minute invite to your co-worker's white elephant gift exchange, the year-end tip to your dog walker or a particularly pricey plane ticket home.
The key is to think about holiday spending the same way you would other recurring, non-monthly expenses, like annual insurance premiums, quarterly tax estimates, and home maintenance, says Tom Gilmour, a CFP® at LearnVest Planning Services. "Since you know you're going to have the expense, being ready is just a matter of planning for it far enough in advance," he says.
Enter the holiday savings account.
Just as you can factor those other non-monthly expenses into your budget by funneling a portion of each paycheck into a separate savings account to cover them, you can do the same thing for your holiday spending by opening up an online high-yield account earmarked for the season's expenses, says Gilmour.
Ideally, you'd have defined your holiday spending cap and created the account in January, which would leave you plenty of time to save up cash. For example, if your target goal is $1,200, then squirreling away just $100 a month over the year makes getting to that number a lot easier.
But all hope isn't lost if you haven't already done that. Just like it's never too late to start saving for your retirement, setting up this account now — even with only five weeks to go — is still a wise thing to do. Socking away as little as $20 a week until Christmas can yield enough to cover the cost of a rental car or groceries for a family dinner with all the trimmings.
So now that you know this simple hack for holiday savings, what else can you do to fund your account — now and next year — to help ensure that both December 2014 and 2015 are filled with good cheer? We asked Gilmour, plus other CFPs around the country, to share their favorite tips for boosting your holiday savings balance.
Savings tip #1: Automate, automate, automate
"You want to treat [your holiday savings] like any other bill being taken out of your checking account as part of your monthly budget," Gilmour says, adding that's why one of the best things you can do to beef up this account is to automate your contributions.
You can do it yourself by setting a monthly, recurring transfer from checking to savings, or, as Trace Tisler, CFP® and founder of Epic Financial in Wilmington, N.C., recommends, you can ask your employer to help you out.
"Since most payroll systems allow you to have your paycheck split and deposited into multiple accounts, you simply have to request that part of your earnings be deposited into your specified savings account," Tisler says.
Worried you won't be able to spare the cash every single month? Don't be, says Greg Smith, CFP® and managing director of The Wise Investor Group in Reston, Va. "Monthly saving can evolve into a set-it-and-forget-it kind of approach, where you likely won't even miss the money once you start socking it away," he says.
Savings tip #2: Trick yourself to stay accountable
"The real magic to making specified savings accounts work is limiting your ability to use the funds until it's time," Tisler says. "In today's high-tech world, it's too easy, too quick, and too tempting to log in and transfer funds from account to account."
So how can you help keep yourself accountable? Consider taking Gilmour's advice about setting up an online savings account — and then go one step further: Pick a completely different bank, where you don't have any other accounts.
"Distinguishing accounts by institution is a psychological trick I use to help reinforce the purpose of each account," Tisler says. "You won't see your specified savings account when you log in to check your primary spending balance with a different bank, so you'll be less likely to transfer funds between accounts."
Another way to help protect yourself from yourself, as Tisler puts it, is to "hide" your money by stashing your debit card and checkbook for the specific savings account in a safe, out-of-reach spot — like a block of ice, fireproof safe, or a safe deposit box — until it's officially time to start spending closer to the holidays.
Savings tip #3: Divert extra cash into your account
Now that you know how to safeguard your savings, you can focus on ways to grow it.
To do that, Tana Gildea, a CFP® with Compass Financial Consulting in Atlanta, suggests brainstorming creative ways to increase your contributions by scaling back on daily expenses — an especially effective strategy if you realize the steady cash already flowing into your account may not be enough to cover your holiday expenses.
Maybe you can forgo a store-bought sandwich for a homemade tuna on rye or opt for a few DIY manicures instead of hitting up the salon. "The next time you can say 'no' to some purchase, move the money you saved to your holiday account," Gildea says. You can also commit to moving other kinds of "found money" — like an unexpected end-of-year bonus — straight into your savings account.
And don't stop there. Did you make any extra money from a side gig this year? If so, sock that away as well, says Gildea, who saves her own freelance income for her December expenses.
Savings tip #4: Spend with intention — to make your savings stretch
A 2014 National Retail Federation survey found that the average person will shell out a whopping $804 this holiday season — that's a big chunk of change, especially if you haven't been saving all year. So how do you keep your spending under control to stretch your savings as far as possible?
First, try to isolate what's likely to be your biggest budget buster this season. Sharon Weaver, a CFP® and president of Mission Financial Planning in Mission, Kans., ventures to guess that it's the presents on your list. "Too often, they become a source of competition, stress, or obligation," she says.
One solution? Talk to your friends and family about the possibility of putting spending limits on your gift exchanges. This way, you won't feel guilty about not spending as much as your sister — or feel the pressure to put a gift or two on your credit card without a plan to pay it off at the end of the month.
Other ways to master the art of smarter spending around the holidays: Keep track of the gifts you've already purchased, so you know exactly where you stand — and don't accidentally buy someone two gifts because you lost track of the first one. And if you might be susceptible to impulse buying, never, ever go shopping without a list.
"Unplanned purchases are a prime way to blow your budget," Weaver says, noting that shopping for gifts online may be a good way to help cut out those "extras" that just seem to hop into your shopping cart at the store.
Savings tip #5: Redeem rewards to boost your balance
So you're at the halfway point, and you start to notice your holiday savings account balance running a little low. What do you do?
Seek out ways to leverage the rewards points you've accumulated throughout the year, Tisler says.
If you have a cash-back rewards card, link it to your holiday savings account in order to have your rewards directly deposited there for a last-minute cash infusion. Or opt to redeem your rewards by picking out a gift card — the most-requested gift for the eighth year in a row! — that you can give to someone on your list whose present you haven't picked out yet.
You might also consider shopping in your credit card company's rewards mall. Even if you don't have enough points to score free gifts, by doing this, you'll typically earn more rewards to redeem later on.
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