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I’m writing this at the end of January, which might at first seem like a strange time to be writing about how to avoid going into debt over Christmas.

But actually, January is probably the BEST time to think about your holiday spending.

That’s because last year’s holiday season is still fresh in your memory, and there’s still so much time to plan how to handle next year more effectively.

And the key to that plan isn’t necessarily to cut back on that spending or to stick to a stricter budget for Christmas. You don’t have to learn to knit so that you can make everyone scarves and hats as gifts.

The secret to avoiding debt over Christmas is to be intentional about the money you spend during the holidays. And to create that intention early so that you can start setting money aside for it throughout the year.


Analyze last year’s spending


Before you can set a reasonable plan for next year’s holiday spending, it’s helpful to have information about how much you spent this past year. So dig out those bank or credit card statements, or look back at your budget if you keep one. Think about gifts, decorations, holiday events, food, holiday cards, and travel.

And before you start feeling overwhelmed or annoyed about the tediousness of this process… you can still get a sense of your spending even if your record-keeping leaves something to be desired. In that case, don’t worry about tracking down every last purchase. Just estimate. Look at how much your bank account or credit card balance changed compared to previous months. Make a quick assumption that the change was due to holiday spending, and then move on.


Create a plan for this year


Armed with your data about your spending last year, create a plan for the coming year. It might seem absurd to start thinking about this early, but start drafting out a list of the experiences, gifts, and items you’ll want to spend money on this coming year.

The list doesn’t have to be rigid or incredibly detailed. Just enough to get a sense of what would be reasonable.

Here are some categories you might include:

  • Gifts
  • Decorations
  • Food
  • Travel
  • Events
  • Cards
  • Giving/Donations
  • Photos

As best you can, try to add reasonable spending amounts to these categories. Use your data from last year, or just estimate.

Keep in mind that it’s also not set in stone. You’ll change this plan as the year progresses, and that’s fine.


Set up a sinking fund


Now that you have a plan, it’s time to start acting on that plan.

Total up what you envision spending. Add a cushion if you feel like your estimates are on the low side. Or don’t. Either way, you’ll end up a whole lot better prepared for the next holiday season than you were last year.

Once you have that grand total, divide by the months remaining until December. Create a line item in your budget to set aside that amount each month. Congrats! You now have a Christmas sinking fund!


Where to keep your Christmas sinking fund


As for where to stash the money, that’s also up to you. Keep it in cash in an envelope somewhere if you want. If your bank or credit union has no account fees, feel free to set up a separate account. 

I personally use a high yield savings account. We have our Christmas sinking fund in Chime Bank, which offers .50% APY for their savings account. But the real reason we chose Chime is that they offer a $100 bonus when you first (direct) deposit** $200 into your Chime spending account. It’s free money for your sinking fund.

Here’s my referral link if you’d like to give it a try.

In the name of full transparency, they do pass along a $100 bonus to me for referring someone. But since Chime has no fees whatsoever, a decent interest rate on their savings account, and a pretty substantial bonus that helps you reach your goals that much faster, it would be kind of hard for me NOT to refer them.

**(Although the terms state that the deposit should be a direct deposit, it doesn’t necessarily mean you have to go talk to your HR department. A $200 ACH transfer from any of the banks listed here will trigger the bonus. In layman’s terms, you’d want to log into your regular bank and initiate the transfer from there, either from the transfer menu or from the Bill Pay menu. If you have a side hustle like Uber or Doordash, depositing $200 from one of those accounts should also work.)


Contribute (and spend) as you go


Each month, add your predetermined amount to your Christmas sinking fund.

And as opportunities arise throughout the year, feel free to use that money to get a head start on your holiday spending. If you see something that would be the perfect gift for someone, go for it, especially if it’s on sale and under your budgeted amount for that person’s gift. Buy last season’s wrapping paper or decorations on clearance. Pick up the cookie cutters you’ll need for your holiday baking at a garage sale in August.

And whenever you do some of this shopping in advance, spend the money out of your Christmas sinking fund.


What if you have debt from last year?


If you accumulated debt over Christmas last year and are working on paying it down, I would recommend tackling that debt alongside saving for the next holiday season. After all, you don’t want to just do the same thing next year. It’s important to pay off the consumer debt as soon as possible since it is likely high interest debt, but it’s also important to put a system in place to prevent the same problem in the future.

Here’s what I would recommend:

  1. Tally up the amount of that debt and add it to your Christmas sinking fund total.
  2. Consider ways you can make next year’s holiday spending more within your means. (Can you make use of a local Buy Nothing group for decorations?)
  3. Depending on the size of the debt and your own financial goals, determine ahead of time how much of the money you set aside each month will go to paying off the debt and how much will get stashed away for next year. (In order to avoid the most interest charges, start out by paying far more to debt than to your sinking fund. Adjust that ratio as the holiday season approaches.)
  4. Have a plan and stick to the plan. Or try to beat the plan by finding deals that get you under your budget. Use the difference to pay more toward the debt.

I believe that you CAN have a rewarding holiday season this coming year, even if you realize that your spending last year was beyond what your finances could handle. The wonderful thing about starting this process early is that you can give yourself the freedom to decide what you want your holiday season to look like.


Next Steps


Get started analyzing your spending from last year and creating your budget for the coming holiday season. Remember that it doesn’t have to be perfect. You can adjust as the year progresses.

Then decide where to stash this money away. If you’d like the $100 bonus from Chime Bank, be sure to use my referral link when setting up your account. (Don’t hesitate to get in touch if you have any questions about eligibility.)

I wish you and your family a wonderful holiday season this year. (Even though it’s only January now.)

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