Not-so-silly planning to see you through the festive season

If you plan the cost of Christmas as you go, you’ll find yourself in much better financial shape in the new year. Chartered accountant and wealth coach Leah Oliver shares her festive wisdom to keep things merry.

It feels like all we have to do is blink and Christmas is upon us – our days are filled with work, school, homework, sports commitments and other activities and this year we have COVID-19 in the mix. All of a sudden, the busyness of Christmas is looming.

Christmas is such a busy time. Planning the holiday. Buying the gifts. Entertaining the family and friends. Entertaining the kids (and their tribe of friends) on school holidays. Feeding the masses!

Do we plan for this time financially? The answer is, in the majority of households – no.

If there is no planning, how do families survive the ride through Christmas? My observations show a tremendous increase in the use of credit cards, and mortgage offset drawings during this time of year.

Buy now, pay later

There is a definite sense of “get it now, deal with the consequences later”. Unfortunately, this leaves families in a situation where for the first three to six months of the new year they are recovering financially from failing to plan for the cost of Christmas.

This then leads to a vicious cycle as it doesn’t leave much time before the next Christmas rolls around! And so, people inevitably end up in the same position again next year.

So how do we fix this situation? The answer lies in understanding your personal financial affairs.

Here are my top tips to get yourself in the best position to plan the cost of Christmas with ease.

1. Treat your personal family life like a business

Start by tracking your everyday household cash in, and cash out. This will allow you to see a clear picture of what surplus you have to work with.

Ideally, use a basic accounting software or app to do this. Or a good old spreadsheet may also suffice for this exercise.

Go back through the last three months of your bank statements and record and allocate each spend into a category and then average the three months for your monthly spend. The reason why we do three months worth is because household utility bills are generally paid quarterly.

Once you have your figures you will have a clear picture of your monthly surplus, so you know who much you can spend over the Christmas period.

2. Look at what you spent last year

“Eek” I hear a few people say.

Some people prefer not to know what they spend, but if you’re wanting to be financially responsible and comfortable during the festive season you need to know.

When adding up what you spent last year, divide the expenses into gifts, food, kids activities (if applicable), travel (if applicable) and entertainment. This will allow you to see where your biggest spend is and give you a great start in setting yourself a budget for this year.

Don’t forget to add in any additional spend for clothes, hairdresser, etc if you have planned Christmas parties you want to put some extra effort into.

3. Add your Christmas expenses to your household budget

Divide your Christmas expenses into separate categories and add these to your household budget.

For instance, your categories might be: Holidays, Gifts, Kids’ Activities, Entertainment.

Now that you’ve completed steps one and two and you know your figures, after these expenses have been accounted for in your budget, you should always be in a “profit” or “surplus” position to ensure sufficient funding is still being directed to your investments.

If this figure is negative, it’s clear that you are reaching for credit cards and debt to fund your lifestyle.

The last thing you want to be doing each year is starting a new year on the financial back foot. If this has been your pattern over the last few years, draw a line in the sand this year and break the cycle. Start planning now and your future self will thank you for it.

4. Step away from the credit card

If the finances are tight and it looks like you’re going to reaching for credit card, try these alternatives instead:

• In the lead up to Christmas, try to bring in alternative income streams, enhancing existing income streams, or replacing high energy, weaker income streams.

• Pull back on expenses that are unnecessary or excessive.

• Give presents that you make instead of purchasing. For example, give a gift of homemade rocky road or Christmas pudding (yum).

• Opt out of hosting Christmas lunch or dinner and instead encourage other family members or friends to host. Or, if hosting a Christmas lunch or dinner is one of your favourite things to do, ask friends and family members to bring an entrée, dessert, nibbles or wine to reduce your event expenses.

• If you are hosting, don’t over cater – which we’re generally all guilty of. Nail your catering quantities so there’s not a lot of leftovers to help cut your expenses.

• Don’t be afraid to tell people in advance that money is tight and presents will be minimal this year. Suggest doing a Secret Santa or setting a gift spending limit. Chances are other people feel the same way and they’ll be happy to hear they’re not the only ones in the same boat.

It’s remarkable the change I see in families who plan the cost of Christmas and take control of their financial position. Until you can accurately identify your actual personal income and expenses, you will always be spending on things without knowing if they are affordable at that point in time.  In other words, “flying blind” with your money.

Don’t let another year go by where you put the financial stress of Christmas on your family. Plan well in advance, embrace the new year in a positive position and enjoy the silly season!