Oct 27, 2014
By Faith Hayden, Senior Writer
With the holiday season swiftly approaching there are gifts to buy and flights to catch—all of which come with a price tag. According to a survey from the American Research Group, Americans spent an average of $801 on gifts alone during the 2013 holiday season.
For many students and young people early in their careers, making room in an already tight budget to fund a December spending spree brings little holiday cheer. The good news is you can squeeze some extra dollars from a paycheck with a little creative thinking and financial finessing.
Plan and prioritize
The first step in establishing a holiday budget is accurately assessing your needs. Write all of your anticipated expenses out on paper from the high-level (number of people to buy for, travel expenses) to the minute (postage for mailed cards and decorations). Once you have your wish list, assess its feasibility and think through the following questions:
- Is there anyone you can remove from your gift list? If so, you can still acknowledge them with a thoughtful card or homemade baked goods.
- Is your projected spending allotment on each individual reasonable? Do you need to spend $50 on your grandmother, or would she be just as happy with a $20 present and the added gift of your time?
- Are there items on the list that are "nice to have" versus "must have"?
Prioritize the things that bring you the most joy, and try to avoid impulse purchases that aren't on your list.
Finding "extra" money
Once you've determined your priorities, there are a few ways to fund your shopping without dipping into your savings. April Clobes, Executive Vice President and Chief Operating Officer at Michigan State University Federal Credit Union, recommends holiday shoppers first dive into their discretionary spending allowance to fund gifts.
"Hopefully you have an awareness of your income and day-to-day expenses,"she said. "If you normally have $300 available each month to go out to dinner or to the movies, that's where you're going to have to make some personal choices and instead allocate that money to holiday shopping."
Another strategy is to reduce any credit card payments to the minimum during the months of November and December and use the remainder of your budgeted credit card allotment for gifts. In fact, if you are in a bind, many financial institutions will allow you to skip a month's car or credit card payment entirely if you ask in advance.
"This is often done during the holidays because many people don't budget," Ms. Clobes explained. "Generally there is a fee associated with it; it's about $25 to process the skipped payment. And the interest you would owe continues to accrue and extend out your loan. Most institutions won't let you skip payments more than twice in one calendar year, so that's something to factor in as well. But a typical car payment can be anywhere from $250 to $500, so skipping that payment could provide you with extra money to spend."
If you need additional credit for holiday spending, Ms. Clobes cautions against signing up for department store credit cards, no matter how tempting the deal.
"Everyone is going to offer you a card at the checkout counter and give you a discount for buying that day," she said. "The reality is those cards have an expensive interest rate attached to them. An average store credit card ranges from 22% to 26% APR [annual percentage rate]. A low-rate Visa for someone with good credit is 8.9%. The savings you get from the store when opening the card—if you carry a balance even one month—would never cover the interest rate."
Instead of opening additional linesof credit, the better option is to call your financial intuition and ask for an increased credit limit. It will ultimately cost you less.
Heading home for the holidays is one of the biggest expenses, especially if airfare is involved. AAA projected that during the 2013 holiday travel season—between December 21 and January 1—Americans would spend anaverage of $765. Air fares are always inflated during this time-frame, and now airlines are offering fewer flights and virtually no last-minute deals. But there are a few travel best practices that can ease the pain.
Book and fly midweek
"You're going to have to inconvenience yourself to save money," said Kendal Perez, marketing manager for Kinoli, Inc., and blogger for hasslefreesavings.com. "If you have a flexible schedule, fly midweek or several days before Christmas or several days after. Avoid weekend travel and traveling the day after major holidays. I always take the first morning flight out or the last flight of the day. Those will be better rates than mid-morning or mid-afternoon flights."
Ms. Perez also recommends booking airfare on Tuesday afternoon. Many airlines will release airfare deals on Monday, and by the weekend prices have inevitably started to climb because of demand.
Avoid third-party search engines
It sounds counter-intuitive, but Ms. Perez doesn't recommend booking airfare through third-party sites such as Kayak or Expedia. Although these sites provide travelers with an efficient airline price comparison, their customer service can be lacking and their prices are only marginally better, if at all.
"I have not seen price differences between the airline and a third-party search engine," she said. Furthermore,"if you need a customer service representative to troubleshoot an issue, the airlines become very difficult to work with if you didn't book through them."
Avoid baggage fees
Some budget airlines may have low base fees but nickel-and-dime you in other areas such as checked luggage. Ms. Perez chooses to fly Southwest because of its almost unheard-of baggage policy in today's Scrooge-like air travel climate: two checked bags—in addition to your carry-on—fly free, and the airline doesn't charge for checking golf clubs or skis. Members of airline loyalty programs may also be able to check bags at no charge. These policies can save travelers up to $120 round-trip.
If you plan on traveling with a sleigh-full of gifts, Ms. Perez recommends taking advantage of Free Shipping Day instead of carting all the items with you."Free Shipping Day is an annual shopping holiday offering free shipping with no minimum order requirements and delivery by Christmas Eve for orders placed on December 18," she explained. In 2012, more than 1,000 retail outlets participated in the annual event. A full list of this year's participants will be revealed on 12:01 AM EST on December18, but a partial list of retailers is available now at freeshippingday.com.
Finally, the most important money-saving tip is to simply plan for the holidays next year. Take note of how much you spent in 2014 and make that part of your yearly savings goal.
"Pay yourself first and revisit that number as your income grows and changes," Ms. Clobes said. "If you look at it as another bill to pay you'll have more success saving money for holiday expenses or travel. It's a great way to start."