Plan Ahead for the Holiday Budget Crunch

Every year, millions of Americans celebrate the holidays with traditions such as throwing parties and buying gifts for family and friends. Unfortunately, many also participate in a tradition that lands them in debt -- spending more than they can afford.

This year, break the buy-now, worry-later habit by creating -- and sticking to -- a special holiday spending plan. It won't take long, and you'll still be able to spread cheer without completely draining your wallet.

Set Limits and Goals

Gauge how much time you have between now and the holidays and determine a realistic spending limit. Divide that amount by the number of weeks you have available and try to save that amount each week.

Next, figure out how to achieve this weekly savings goal. Can you eliminate a weekly dinner out? Take public transportation instead of paying for gasoline and parking? Once you find the money, set it aside in a bank savings account or another safe place.

Once you understand how much you can realistically afford to save and spend, try to stay within your limits. The following pointers may help -- now and in the long term:

• Resist the urge to borrow from your employer-sponsored retirement account. The less money you have in your account today, the less money it may be able to generate for the future. And if you leave your job before the loan is paid, you must repay it in full or face ordinary federal income taxes and a 10% additional federal tax.
• If you have a big family, think about proposing a system in which each adult buys just one present for one other family member. Drawing names from a hat should do the trick -- everyone can save money at the same time.
• If you won't see certain people until after the holidays, wait for the post-holiday sales to do your shopping. Prices can be much lower.
• Keep your receipts for everything from greeting cards and gifts to decorations and holiday meals. In January, sit down and figure out how much you actually spent. This will help you set a goal for next season. Divide your goal by 12 and try to set aside that much cash each month over the next year.

Nobody ever said you need to be a tightwad to enjoy the holidays, but spending carefully may be the best way to guarantee happy memories of debt-free celebrations.

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