I must confess to being a bit of a Scrooge in that I don't necessarily love the silly season. Don't get me wrong, I'm all for drinking champagne and frocking up but the introvert in me doesn't really cope with quite so many social engagements. Plus, there is something about the crippling amount of money often spent during this six-week period that makes me feel more than a little uneasy.
Perhaps that's because I invariably see the effect of all that excess in the new year when clients come to see me with a very acute financial hangover. This might be in the form of a large credit card debt, wiped out savings they had been diligently building during the year or a business owner that hadn't prepared for the extreme financial highs and lows depending on their type of business and now was facing a mountain of bills with no money in the bank.
All of which can create a whole lot of unnecessary stress, anxiety and in some cases, acute financial pain for a season that is supposed to be about joy and happiness.
So what can you do to avoid a nasty case of new year financial hangover? It really is a case of planning ahead. That's because a little pain now in terms of planning can mean you avoid a whole lot of pain later on.
1. Write your nice list
In the same way that Santa writes a naughty and nice list, work out who you're buying gifts for, what events you'd like to attend, what events you'd like to host and any other extra spending you might incur in the lead up. The reason I like to include both gifts and events is that sometimes the events can outweigh the gifts, so it's important to plan for both – particularly if you're thinking of buying a new outfit for every occasion.
2. Decide how much you can safely spend
You might allocate a budget of $5000 for the festive season, which is a combination of amounts you've already saved up and how much you could reasonably save over the next eleven weeks. It's important not to factor any credit card limits into this amount but instead to plan to only use cash. At the moment, you're not working out whether this is realistic or not, you're just working out what you can afford.
3. Allocate it
So you've decided $5000 is the limit, you have 10 people to buy gifts for and five events. Now it's time to allocate your budget across the gifts and events. This might be specific amounts for specific people or it might be simply a pot for events and a pot for gifts. Of course, if you've over-allocated you might decide the surplus can be donated to charity or it could be a buffer for anything you've forgotten. If you've under-allocated, perhaps it's time to either work out a plan for cheaper or fewer gifts, prioritising the events or talking to friends and families about ways to lower costs. Sometimes you simply can't do and buy everything and it's important to figure that out now or if you're creative, to figure out frugal ways you can do everything.
4. Set up a bank account
The easiest way to not go over your pre-determined silly season limit and also to enjoy your spending without guilt is to isolate the funds. Set up an account called Festive Season and transfer the funds both now and over the coming weeks to this account so you will have your budgeted amount when you need it. This also means you can enjoy the season without feeling that you're going overboard because you've already allocated the funds.
5. For business owners
If you're in retail, the run up to Christmas is often peak sales time and it's important to work out a plan for those funds so you don't spend them when you'll need them later on. That means putting aside money for GST, income tax and for operating costs so you can keep the doors open when it's quieter during the year. If your business closes down over the holidays or has less work coming in, it's all about figuring out now what size the hole will be and making a plan to do something about it. That might mean talking to the bank about an overdraft, putting money aside or planning a special marketing campaign to increase revenue during the slower months.
You don't remember how much fun you had when you're caught in the grip of a raging hangover and it's no different for a financial one. Make sure you enjoy the holiday season and protect yourself financially by taking the time to plan ahead.
Melissa Browne is CEO of accounting firm A&TA; and author of Fabulous but Broke.