Christmas is a time of joy and cheer, but it can be financially stressful for some families. This is especially true for homeowners dealing with higher mortgage repayments, having little room left for discretionary spending in their household budgets. Even if you don’t own a home yet, the rising cost of living is likely to impact your budget and Christmas spending can add to the stress.
But is it really possible to enjoy the holiday season without eating into your savings or taking a bite of unhealthy credit?
Don’t let your Christmas spending ‘grinch’ your new year!
Research from the consumer intelligence platform Toluna confirms that more than 40% of people are worried about not having enough money to purchase Christmas gifts. Yet, pre-Christmas spending is expected to touch $63.9 billion – 3% more than the previous year.
Unfortunately, not everybody will have savings to cover their pre-Christmas spending, and many people will turn to various forms of credit. A recent survey indicates about 13% of Australians will use their credit cards for Christmas shopping, while 9% will rely on a buy now pay later service. Even though this doesn’t sound alarming, things could change in the coming year.
The RBA has already raised the cash rate from 0.1% to 3.1% since May, and further hikes might be on the way. Homeowners are likely to feel the pinch in the new year as their monthly repayments rise, and adding a credit card bill or BNPL instalments to this mix will only increase financial stress. But that doesn’t mean you can’t spread the festive cheer or revel in it. Just plan ahead and follow some of these tips to enjoy the holidays without breaking the bank:
Plan your budget
It’s easy to get carried away with the Christmas spirit, but it could also hurt your finances. Before starting your pre-Christmas shopping, take some time to plan. You can list all the people you want to buy presents for and what you want to buy them. If you don’t know what to purchase, you could indicate how much you wish to spend on each person on your list.
You can also prepare a list of groceries and other items like Christmas decorations, cards, and wrapping paper. Add up the cost of your presents and other items and check if this is a figure you can afford.
If yes, make sure you stick to the amount you’ve noted and spend a debt-free Christmas. If the figure happens to be beyond your budget, start looking for areas where you can trim.
Here are some ways to plan a thrifty yet fun Christmas:
- Instead of buying individual presents, you may consider a family-wide Secret Santa. Not only would it be easier on everybody’s wallet, but you might also receive more meaningful gifts as it’s easier to buy for one person.
- Christmas is about spending time with your family. You could decide not to exchange presents but organise a get-together wherever everybody spends some memorable time together.
- If you want to do something different, consider donating an amount you’re comfortable with to a charity of your choice instead of buying presents for everyone.
- If you typically meet your friends for pre-Christmas drinks at a bar or a restaurant, consider replacing it with an outdoor picnic or barbecue for a different experience.
- Don’t stress about turning the Christmas lunch into a banquet. You can ask the guests to carry a plate each to ensure it’s easy on the pocket for everyone.
A dollar saved is a dollar earned
- It pays to be thrifty while shopping. Look for coupons, cashback schemes and vouchers to save money on your shopping spree.
- If you’ve accumulated enough points on your credit card, consider exchanging them for gift cards or other items that could be used for Christmas gifting.
- With only two weeks left for Christmas, consider ditching your morning cappuccino to save up to $4 daily. While it’s not a considerable amount – saving $4 daily for two weeks can surely cover one Christmas present on your list.
- Organise a garage sale to make space for new items in your home and earn some extra cash. You can also consider regifting if you have some unused items that your friends or family will find useful.
- Many people travel during the holidays and pay handsomely for someone to look after their pets. If you love pets and wish to spend some time on your own this Christmas, a pet-sitting gig could help you earn money and the company of some furry friends.
- Alternative gifting ideas are getting quite popular of late. Handmade candles, soaps, bakes, etc., can make for thoughtful Christmas gifts without eating into your budget.
Avoid credit this Christmas
If you prefer using your credit card to pay for your Christmas shopping, make sure you can pay your bill in full, or it could affect your credit score and borrowing capacity in future.
Some people choose to make the minimum payment on their card, but they need to realise they’re accruing debt at a fast pace. The balance on your card continues to roll over and accrues interest when you only make the minimum monthly payments. This can eventually lead you to a debt trap that can also affect other areas of your life. Therefore, it’s wise to stick to your debit card for shopping or only spend up to a fixed limit if you’re using a credit card or any other form of debt.
It’s also possible to use BNPL platforms like Afterpay to purchase what you want and pay for it later. Compared to credit cards, BNPL services don’t generally charge any interest, but they might charge late fees and account-keeping fees. Besides, it’s easy to overspend when using multiple BNPL platforms to make purchases during the holiday season.
It might look like a great plan to stagger your holiday purchases over several weeks, but whatever you don’t pay now, you’ll have to pay for it later. If you’re not careful, you could end up buying more than you can afford and start accruing late fees as you struggle to keep up with your repayment schedule. It could be worse if you linked your BNPL account to your credit card, as not paying your credit card bill on time can lead you to pay hefty interest charges.
Taking on too much credit during the holiday season affects your budget and can impact your eligibility for future credit. If you miss repayments regularly or don’t pay your credit card bill, it could also hurt your credit score.
Even if you can keep up with the repayments, regular BNPL usage may be considered a sign of poor spending habits and money management by some lenders. If you’re planning to buy a home in the near future, taking on too much credit during the holidays could make you appear as a risky borrower and even lead to your application getting rejected in some cases. You can speak with a mortgage broker to understand the risk factors that affect your mortgage application to avoid making any financial mistakes you might regret later.
