It is more likely that you are planning your summer vacation than having started your Christmas shopping — but by getting going right now on some early Yule holiday financial planning, you can give yourself the gift of a debt-free Christmas.
The best Christmas buying strategy is to ‘afford as you go.’ That way, you won’t use credit for your purchases or face any big, long-term, high-interest bills next year. But where will your ‘extra’ cash come from? The key is to set it aside before it gets chewed up in the cost of daily living.
Pay yourself first. When you set aside a portion of your weekly or monthly pay as soon as you get it, you won’t run out and spend it, and your Christmas gift nest egg will grow steadily. You can pay yourself first by saving a fixed-dollar amount or a percentage of your income – say, three per cent — each pay period. Just choose the amount you can most comfortably afford.
Get the best growth for your savings. A low-interest bank account is not a good place to park your savings. Yes, you can make it easy to save by arranging to have your weekly or monthly pay yourself first dollars automatically deposited into a dedicated savings account – but as soon as your savings start to build, move some into investments that generate higher rates of return, such as:
Money Market Mutual Funds that earn competitive returns and can usually be redeemed in a matter of days and, depending on the fund, may even allow chequing privileges.
Guaranteed Investment Certificates (GICs) or Term Deposits can be a good choice when saving for purchases – like Christmas presents – that are months away and you can commit your cash for a longer term. With these investments, you lock your money in for a fixed term in return for a higher interest rate.
Government Savings Bonds are often cashable at any time but can be purchased only within a limited time each year. Your employer may offer an automatic purchase program for Government Savings Bonds.
Save long before the Christmas season, and you will reduce the cost of your Christmas gifts, without looking like a Grinch, by taking advantage of off-season markdowns or sales as they happen and by paying in cash. That helps you avoid the Christmas rush when the spirit of the season can overtake reason and push you to the more expensive alternatives.
J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc. His column appears every Wednesday.