Written by: Guest | Best Company Editorial Team
Last Updated: February 24th, 2020
Image courtesy of Chime
Guest Post by Kristen Baker
The holidays are meant to be a joyous time of year, but for many people, financial struggles can create stress and worry. In fact, 39 million Americans still have debt from the previous holiday season. However, by instituting some smart saving strategies and paying off debt before the holiday season begins, you can set yourself up for better financial health in the new year. Here are four tips to get through the holidays with minimal financial stress.
Pay off debt before the holidays
The more quickly you can pay off debt, the better. Allowing your debt to compound will only make payments more expensive over time due to interest. Even if you can’t pay off all of your debt from the previous holiday season, it’s better to pay off some as opposed to none. One of the best solutions for paying off debt is by using the snowball method popularized by Dave Ramsey.
To implement this strategy, first, list all of your debts from smallest to largest. Continue to make all of the minimum payments on these debts, and contribute any extra money towards paying off the smallest debt first. Once you have paid that debt in full, move onto the next smallest remaining debt. By tackling the smallest debts first, you can pay them off quickly and avoid additional interest payments. Plus, paying off debts will feel like a huge win, motivating you to continue paying down your debt and build momentum from the beginning. According to Ramsey, “it’s all about behavior modification, not math. When it all boils down, hope has more to do with this equation than math ever will.”
Start saving ahead of time
It’s hard to start thinking about the holiday season while the weather is still warm, but the sooner that you can start saving, the better off you’ll be when it comes time for serious holiday expenses. Once it comes time to begin shopping, you’ll already know how much you can afford to spend while still avoiding debt. If you already have a plan in mind, try using a sinking fund to better plan ahead.
Creating a sinking fund is easy to do by following a simple formula. First, choose the amount of money you want to spend, and then choose the date when you’ll start the saving process. If you want to save $1,000 by the holiday season and are looking to start four months ahead of time, you only need to set aside $250 a month! On the contrary, if you wait until the last minute to begin saving, it may be difficult to find an extra $1,000 in your budget.
The best way to keep track of your sinking fund is by opening a separate savings account. By keeping your finances separate, you can track them against your goal. Choosing an online banking account with a mobile app can save you time and effort as well — transferring funds can be done automatically and finances are easy to monitor.
Make a list and check for deals twice
Once you have budgeted a defined amount, you know how much you can afford to spend on certain gifts, allowing you to make a comprehensive list. The sooner you make your shopping list, the more time you have to shop around for the best deals. Shockingly, 4 in 10 Americans wait until the very last week before they even begin their holiday shopping! Even worse, some don’t finish at all.
Leading up to the holiday season, there are plenty of opportunities to find the best deals on your gifts. Black Friday and Cyber Monday create a massive shopping weekend right after Thanksgiving, but other lesser-known days for deals, like Green Monday and Free Shipping Day, might be able to save you even more. Plus, if you’re shopping for some of the season’s hottest gifts, they may be sold out by the time the final days are approaching.
Set a budget and stick to it
If you go shopping without a budget, expenses can add up quickly, and you may not even realize it. One of the best ways to set a budget is by making a list of all of the people you need to buy gifts for and then determining an appropriate amount for each person. If this budget exceeds your capabilities, you can then decide where to cut down and better allocate your finances. If you don’t set spending limits on every person, you may begin shopping and blow through your budget before even buying gifts for some people.
If you find yourself wandering from your predetermined budget or need to exceed your overall budget, it’s important that you track your spending. Actually taking note of your finances will make you more self-aware and should make you think twice before creating more debt.
Kristen Baker is a personal finance enthusiast and content creator. Outside of work, she thoroughly enjoys taking her dog to “Dogs Allowed” coffee shops, reading, and admiring art exhibitions.