Tips to avoid overspending during the holiday season

From buying gifts to booking flight tickets, people are preparing for the holidays, and that can often be costly.

According to an RBC poll released at the start of 2017, Canadians continue to overspend during the holiday season. The average amount of money that was overspent rose from $397 in the 2015 holiday season to $403 in 2016. Furthermore, 47 per cent of people living in Atlantic Canada overspent during the holidays.

Financial adviser Brian Himmelman has some tips on how to control spending during the holiday season.

Set a budget

Himmelman suggests people start by looking at their yearly expenses, such as mortgage, property taxes and car. Within that, there are also discretionary items like travel, eating out and shopping for Christmas. By finding trends in that data, he says people can plan accordingly and determine a suitable budget.

Since Christmas is a time of giving, Himmelman says people tend to donate to their favourite charities this time of year. Therefore, they should also keep that in mind when planning their budget.

The RBC survey states that keeping a separate bank account, specifically for savings, helps people stay organized and within their budget. There are also online budgeting tools that help people organize their expenses.

Start planning early

The key to not surpassing a budget, Himmelman says, is to start planning early. People can start setting their spending limits and their savings as early as the beginning of the year. Himmelman also finds that people who overspend tend to be those who do most of their shopping within the two weeks leading up to Christmas.

A study by the Journal of Consumer Psychology suggests that people who are stressed tend to go shopping because they feel happier as a result. Although, Himmelman says, that when people panic, they tend to pay higher prices, so he recommends starting holiday shopping as soon as possible in order to make better choices.

“It’s often a very stressful time for people for financial reasons,” he says.

Himmelman says it’s also a good time to take advantage of making more money.

An example he gives is tax-loss selling, which is when investors sell one investment with a capital loss to offset tax on another investment that has a gain. The deadline for that is before the year ends, but Himmelman says that people often miss the deadline because they get caught up with other things.

For him, it’s essential to make time for these things and recognize other ways to save money, such as watching out for retail promotional sales.

Be mindful of finances

One of the best things people can do, starting in early December, is to revisit their budget to remind themselves what their plan is. Himmelman says it’s good to be conscious of that and continue to do so throughout the month, so people aren’t surprised when they tally up their bills.

The RBC poll lists “budgeted and tracked my spending” as the second most common reason for why people didn’t overspend.

Himmelman finds that making a shopping list helps with organization and tracking.

When debt happens

Himmelman says people have to recognize that there’s a difference between good debt and bad debt. According to Loans Canada, a company that refers people to lenders, good debt increases assets or has a future value, like buying a mortgage. Bad debt doesn’t grow assets and consumer debt is the most common form of bad debt.

Himmelman says that people need to identify the behaviour, mindset and attitude that got them to bad debt.

“They have to look in the mirror and see that that’s an issue,” he says.

Education is crucial

In order to avoid falling into debt, education is key, Himmelman explains. The RBC poll found that 18 to 34 year olds were the largest group of overspenders, at 68 per cent. Himmelman says that it’s easier to accumulate debt in that age group because people aren’t experienced with finances. He says they don’t, but should, learn about personal finances in school.

“You give them the carriage before the horse, when in fact people should learn about the basics of income taxes, managing a bank account, debt,” he says.

To help, Himmelman recommends people also find a trusted financial adviser. Whether it’s a professional adviser, family member, or someone who’s very good with finances, people should use that person as a coach and a mentor.