How Much Should You Spend on Holiday Shopping?
by www.SixWise.com

Thanksgiving is just around the corner, and with it comes the official start of the holiday shopping season. Spending is expected to increase some 7.5 percent this holiday season, an increase credit card group Visa USA attributes to rising employment and falling gasoline prices.

Typically, the holidays generate over one-fourth of annual U.S. retail sales. This year since Thanksgiving falls early, there's an extra shopping weekend before Christmas, and experts expect an extra boost in sales because of it.

It's easy to get caught up in the holiday spirit when looking for gifts. The average American spent $1,096 on holiday gifts in 2005, and many faced higher-than-normal credit card bills in January as a result.

Holiday Spending Sends Many into Debt

Something about the holiday displays and the spreading of holiday cheer makes many Americans overspend.

"I think a big catalyst for problems ends up with the holiday season," said Brad Strohe, co-chief executive officer of Freedom Debt Relief, a consumer debt resolution service. "Culturally and combined with all the marketing, people throw caution to the wind and have less personal guilt about spending because it's not on themselves."

When all is said and done, consumers go over their holiday spending budgets by an average of 15 percent to 30 percent, according to the International Mass Retail Association.

With all of this extra spending, a 2004 holiday survey by The Consolidated Credit Counseling Services found that 39 percent of consumers were still paying off their holiday debt from the year before.

"You have to look at where you'll be three months from now, six months from now, and a year from now. Otherwise your financial hangover will turn into a financial disaster that will stay with you for years to come," says Karen Gross of the Coalition for Consumer Bankruptcy Debtor Education

How Much Should You Spend This Holiday Season?

There is no right or wrong amount for everyone, but what is important is figuring out how much you can afford to spend by making a budget.

A general rule of thumb to follow, according to CBS News Early Show Financial Advisor Ray Martin, is to only spend what you can afford to pay off before April 1. Anything that takes you longer than three months to pay off is out of your budget.

When setting a budget, first decide how much you can afford to spend (as opposed to basing it on how many gifts you have to buy).

"Our recommendation is to set a limit for a maximum amount you're going to spend, without regard for how many presents, who you're buying for and for what purpose," Strohe said. "Then make a list for the people you need to shop for and allocate how you're going to spend your original budget."

Keep that list with you when you shop to avoid impulse buys or spending too much on any one gift. And, says Martin, make sure you shop early to get the best deals.

"Last-minute shoppers pay the price for their procrastination in several ways," Martin says. "They don't have the time to look for sales, be selective or price compare. Taking the time to do this can save as much as 20 percent on some purchases. Also, late shoppers tend to use premium delivery services such as next-day delivery as opposed to two to three-day delivery."

Tips for Happy Holiday Spending

Planning how to shop this holiday season is perhaps the best way to ensure your holidays won't be spoiled by a huge debt come January.

"By developing and sticking with a holiday spending plan, Americans can enjoy the holiday season without suffering a financial hangover," said Stephen Brobeck of the Consumer Federation of America (CFA). They offer the following tips to keep your spending in check during the holidays:

• Make a budget and stick to it.

• Make a price list of all gifts and other holiday expenses (food, decorations, greeting cards, party clothes, etc.) to make sure everything is included in your budget.

• Compare prices before you buy and review sites and stores that offer gifts under $30, under $40, and other targeted price amounts you have set

• Pay off credit card debts as soon as possible to avoid expensive interest charges.

• Start a "Christmas Club Account" for next year. This allows you to automatically deposit funds each month into a bank account you'll use for your holiday spending next year.

Recommended Reading

How to Choose the Right Gifts for Men: Six Simple (and FUN) Steps

How to Keep Your Spirits High During the Upcoming Holidays

Sources

Reuters November 2, 2006

MSNBC

Consumer Federation of America

CBS News: The Early Show

Santa Cruz Sentinel