It’s no great secret that Christmas is the most expensive time of year for the majority of families in the UK, but with continuing financial pressures making household budgeting difficult year-round, this year will be more challenging than ever. And while it may seem early to start thinking about the festive period, planning and preparation is key to ensuring your finances are kept in check.
Gift buying, stocking up on extra food, preparing for house guests, and having children at home for the school holidays all puts a strain on our finances at Christmas. Additionally, interest rates, higher energy prices, and soaring prices of food and other goods is going to make this December more stressful for many. Half a million mortgage-holders are facing increases of hundreds of pounds to their monthly payments as their fixed deals end in the run-up to Christmas. Figures from the Financial Conduct Authority indicate that around 500,000 fixed-rate mortgages will come to an end this November, December or January, when household finances are already most stretched.
The debt advice charity StepChange advised more people on 3 January this year, the first working day after the festive break, than on any other day the previous year. Richard Lane, from StepChange said: “Christmas can put great financial pressure on people, causing some to rely on credit and spend more than they can afford. In some cases, this can lead to a debt hangover in the new year that may take many months or even years to repay.”
Indeed, as many as 1 in 5 people in the UK could still be paying off Christmas debt right up to Easter. To avoid this debt, and ensure Christmas doesn’t impact your financial health and stability, we’ve put together some tips to help you prepare your finances for Christmas. While it’s still a couple of months away, planning ahead is necessary and will help you make the most of your budget during the festive period.
Put money aside early
It’s not unusual for a family in the UK to spend up to £1,000 extra over Christmas, which is too much to cover from one month’s income for most. For that reason, it’s essential to start putting money aside as soon as possible to build up your festive savings gradually and avoid going into debt. And of course the sooner you start saving, the more gradually you’ll be able to build up your Christmas fund, and the less you’ll need to put aside each week. You could consider using a savings app to help you keep to your savings plan, and many supermarkets now have Christmas saver schemes that allow you to save throughout the year when you do your weekly shopping. The added advantage with these is that they often reward you with a bonus to spend during the festive season, with some offering up to 6% as a top-up for your Christmas shop.
Create a budget
Although creating a Christmas budget may seem like a chore, it can be a really helpful way to control your finances and ensure you prioritise what you spend on. By thinking carefully about the most essential elements of your Christmas, then perhaps the things you can do without or economise on, you can work out how much you need to put aside. It’s best to record your budget in writing or on a spreadsheet to help you stick to it, and to ensure you can add in the costs that are often forgotten such as decorations and travel. Of course, keeping to your budget is as important as creating it, so ensure you refer back to it and perhaps consider a budgeting app to help keep on top of it.
Don’t forget regular costs
It’s important to budget for, and continue to pay all your usual bills. It’s easy to forget about the usual monthly outgoings at Christmas time, so make sure that you’ve accounted for things like mortgage payments, utility bills, council tax, travel and fuel, and subscriptions like streaming services. If these are paid by Direct Debit this will help ensure they’re paid on time, but it’s important to keep enough funds in your bank account to cover them. If you pay these another way that may help to keep payment dates flexible, but be sure to set reminders so that you don’t miss any payment deadlines.
Spread the cost
A great way to help you stick to your budget and ensure you don’t over-spend in December is to start buying things as early as you can to spread out the cost of Christmas. By buying things like gifts, non-perishable foods and train tickets earlier in the year, you don’t rely on one pay day to fund the entirety of your Christmas. This also gives you the time to shop around for the best deals and take advantage of sales and offers.
Plan your festive menu
This may seem like something that can wait until nearer the time, but since Christmas dinner, other family meals and festive parties represent a big part of our spending in December, it’s well worth planning ahead. Buying non-perishable food items in advance will help, and it’s important to pre-order some things such as a turkey if you’e having one. Buying last minute will often lead to spending more as you’ll have less choice and may have to go to more expensive shops.
Borrow with caution
While it’s ideal to only spend within your savings and income, if you find you need to borrow in order to meet the costs of Christmas, be careful to choose the best way to do so. 0% interest credit cards are often the cheapest way to borrow for something like festive spending, as long as you use them with caution. Always ensure you pay the monthly minimum repayments and set a reminder for when the 0% period ends, so you can be sure to clear the balance before a high interest rate kicks in.
Start planning for next year
Finally, don’t forget to start planning for next Christmas as soon as possible. It may not be your first thought right after you’ve enjoyed this year’s festivities, but the sooner you start thinking about next Christmas, the more you’ll be able to save and the most you’ll be able to make of your budget. Consider opening a savings account specially for the cost of Christmas and add a little each month, either as a standing order so you don’t forget, or flexibly so that you can add more in the months where your outgoings allow you to. As with any type of financial planning, preparation is key.
