I know what you’re thinking. Kristin, we just celebrated Christmas. It’s not even 2009 yet. Can we get through New Year’s please?
Okay, okay. Enjoy New Year’s, but then you need to start planning for next year. How did you pay for the holidays? Did you charge everything to pay it back over the next 12 months? Did you scrape money together and maybe let other obligations go unpaid? Or did you have a smaller holiday than you wanted because you didn’t save? Well, Christmas 2009 will be different, but in order to do that, we need to start today.
While I was teaching this semester, I made mention of Christmas clubs. Most of my students had no idea what I was talking about. Many of you may not either. It’s ok. Christmas clubs seem to be a thing of the past, especially as we all turn to larger banks for our accounts. There are still a few banks that still offer Christmas clubs but they are few and far between. A Christmas club is an account that you set up at your bank. You tell the bank how much you need for the holidays and they would put you on a payment plan. Each week, you would put away a small portion of the amount you need for the holidays. When the holidays come around, you withdraw the money and pay cash for all your gifts. Paying cash… what a novel idea.
Your bank doesn’t need to have a Christmas club for you to save for the holidays. There are so many automatic savings options now, it’s easy to make your own Christmas club. First, you need a budget for next year. Include gifts, cards, food (we all tend to spend a lot on food during the holidays), and travel costs if you have a long way to go to get home for the holidays. This money should be able to cover all your holiday costs. Do you get a real tree? Throw some money in the budget for that also.
Now that you have your budget, figure out when you want the money to be available to spend. I make a lot of my gifts, so I need access to some of the money early. I generally figure that I should have saved my entire holiday budget by Thanksgiving. I will occasionally transfer money earlier in the year to purchase yarn for gifts but the most expensive gifts are purchased. Since I need to have all the money by Thanksgiving, I need to save for 11 months. Take your budget and divide the amount by the number of times you’ll get paid from January through November. If you get paid every two weeks, you will have approximately 24 pay periods in that time. So if your budget is $1000, you’ll divide it by 24 pay periods or $41.67 per pay period. I’d just round it to $42. That’s not bad, especially if you are actually going to make interest on your money rather than paying interest on your credit cards.
Now you need to set up an automatic withdrawl. You can either use a savings account with an automatic savings plan. I use ING Direct. There are lots of online banks that allow you to do this. Your bank may also let you do this, but the interest rates are a lot lower. You can also set up a direct deposit if your employer allows this. Most companies that have direct deposit will allow you to split your net pay into multiple accounts.
If you get this set up before your first paycheck of 2009, you’ll be well on your way to having a credit card free holiday next year!
Happy New Years! I look forward to saving with all of you next year.