Most Americans will dread getting their credit card bill in the mail next month.  Are you one of those?  Years ago, I remember how I got a little too excited buying presents for my family, and ended up taking a few months to dig myself out of the hole I had created.  This year, that wasn’t the case for us.

This year, we paid cash (or debit) for every purchase we made for Christmas.  We aren’t dreading the bills to start arriving next month.  After many hard lessons learned in the past, we’ve finally become disciplined about saving for Christmas on the front end, and spending only what we have.

One of the first posts I wrote on this blog was about accruals.  I absolutely love having accruals in our budget.  In a basic form, picture an accrual like stuffing away money under your mattress for months, expecting some sort of expense to happen in the future.  Out of all of our accruals, our Christmas accrual is by far my favorite.

Starting in January, we “write a check” to ourselves and call it “Christmas gifts.”  We do this every month through December.  As we spend money on Christmas, we reduce our accruals by that amount of money.  This year, our Christmas Gifts accruals paid for these things:

Gifts for four Angel Tree kids.

Gifts for my wife and I.

Gifts for our four kids.

Christmas decor around the house.

A Christmas tree.

Family Christmas pictures to send out.

Postage for family Christmas pictures.

Any ingredients needed to make cookies, cakes, cinnamon rolls, or other holiday candy.

Gifts for extended family.

Gifts for friends or coworkers.

Special events related to Christmas (for us this was ice skating.)

Special Christmas meals (you have to get a Greenberg Turkey for Christmas.)

These are all special expenses related to Christmas.  Without planning in advance – especially if your family tries to work off a budget – these expenses can quickly throw you out of control.

Here’s how you do it:

1) Determine how much you think you will spend on Christmas. If you aren’t sure, just go down the list I just made and try to put a number to each item.

2) Take that number and divide it by 12, for each month of the year.

3) Begin saving that amount each month, so that by next Christmas, you will have a little stockpile of cash to pay for all your Christmas expenses.  Once the money is out, quit spending.  We actually record a debit in our Quicken account, and call it “Christmas Gifts.”  At the end of the year, we run a quick report to see all those debits built up, and the overall amount they represent.

I know, I know, it is a VERY basic concept.  Many people reading a post like this might wonder why I took the time to write it.  For us, this was a game changer in our family when we began doing this years ago.  It gives us a framework within which we can operate freely.

How do you do it?  Do you have a plan you use to get you ready for all the expenses related to Christmas?

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