The idea of last-minute gift shopping is enough to make most people anxious. Over the next few days, those of us who have not yet finished our holiday shopping will be hurrying around to various stores trying to get it all done quickly. When you add the stress of having a deadline to the potential social cost of not spending “enough” on the people you love and the fact that credit card companies make it easy to overspend, it’s a perfect storm for racking up serious debt (which is probably why getting out of debt is a top New Year’s resolution every year).
Fortunately, there are a few things you can do to prevent buyer’s remorse with your last-minute shopping:
1. Set a fixed budget, then work backwards against it by focusing on your closest family and friends. Start with a number, for example $400, and then list the family members who you need gifts for this year. Write down the amount that you want to spend on each person. Then use whatever you have leftover to spend on others who are slightly less of a priority to purchase for. This shouldn’t take long and could be done quickly on the back of a napkin.
For those more technically inclined, you could use something like this spreadsheet that shows a gift list, categorized by items and including the actual cost if a credit card was used to make the purchases.
2. Categorize your list so you can save time by targeting specific stores. Put a time in your calendar and go to specific stores as opposed to heading to the mall and just walking around. By categorizing your items you avoid wasting time at the mall which inevitably leads to overspending. Malls and shopping centers are designed to disorient you in an effort to get you to buy stuff you don’t need. So being purposeful about your list and your plan paces and targets your shopping. If you are like most people, time is money and you don’t want to get stuck wasting it.
Don’t spend too much time on this part — just make sure to schedule a single day or a few days to go shopping by category. (Also see the “Store” column in the sample spreadsheet)
3. Avoid credit cards, but if you do use them, be sure to calculate the actual cost of the items you’re buying. Let’s say you just can’t afford those plane tickets back east and that pair of diamond earrings for your wife this year. If cutting them out isn’t an option and you need to charge them on your credit card, be sure to run the following calculation to understand the estimated “actual cost” of the items in question:
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Retail price x 1.(interest rate)
So, for a $100 charged on a credit card with an annual interest rate of 15%:
$100 x 1.15 = estimated actual cost of $115
And for a $500 charged on a credit card with an annual interest rate of 10%:
$500 x 1.10 = estimated actual cost of $550
(Also see the “Actual cost” column in our spreadsheet)
This assumes I don’t have an existing balance on my credit card and that I make payments well above the suggested minimum payments in order to pay off my purchases quickly. If I made just the minimum payments, I will pay a lot more interest and it will take me many years to pay off these items. These are approximations and the exact numbers depend on how your credit card calculates interest but they are good enough for our purposes. (This method also assumes it will take you one year to pay off the items and doesn’t include other fees that typically accompany credit card purchases)
I know, it’s easier said than done, but tracking your spending will prevent you from having to stress out later due to a massive credit card bill. The holidays are supposed to be a relaxing time to share with friends and family, so hopefully you can use these simple tips to help you avoid overspending and allow you to focus on what matters the most.
This article is part of our Budgeting Tips Resource Center. If you’re looking for additional information about budgeting tips, be sure to pay a visit!