Cash is king

Erinn Hutkin

GateHouse News Service

When it comes to holiday gifts, it's not uncommon for shoppers to feel they shouldn't skimp on how much they spend on others – even if they're on a budget.

   Yet that philosophy can leave you with big bills come January, and as Lisa J.B. Peterson, president of Boston's Lantern Financial LLC, points out, your family and friends surely don't want you going into debt over holiday presents.

Still, there are ways to make sure everyone on your list gets a gift without going broke or amassing credit card bills. It just takes planning, budgeting and perhaps a little creativity.

Here are a few tips from financial planners on how to set a holiday gift budget, stick with it and not start the new year in debt.

1. Plan your budget  There's no magic formula to decide how much to spend, said David Prothero, a financial planner in Cambridge, Mass. He suggests looking at last year's bank or credit card statements to see if the number needs to be modified. In addition, track your everyday spending for three months using a spreadsheet or financial management software. “Knowledge will help you make informed decisions,” he said. If there's a surplus after your monthly expenses, pick an amount to spend and divide that by the number of people on your shopping list. If there's not much left over, consider alternatives, such as coupons, taking advantage of sales, shopping at secondhand stores or making your own gifts – think about hosting dinner or a game night at your home or making goodies such as chocolate-covered pretzels.

2. Stick to your budget: Setting a budget is one thing, but adhering to it can be harder. Peterson recommends carrying your shopping list with you to keep from overspending. If you find the perfect gift for Mom that costs more than planned, look at your list and see where you can make cuts elsewhere. She said shopping early also helps, as many people tend to make bad decisions when they're stressed. Before the holidays, start a “gift journal” and write down items that friends or relatives mention they want. That way, you know what you're looking for early and can keep an eye out for sales. Also, said Colin Chase, owner of Chicago's Mindful Money Financial Council LLC, don't forget to factor in wrapping paper, shipping and cards. So if you've budgeted $30 on a gift, buy a $20 item and use the rest for postage or gift wrap.

3. Cash over credit: The experts agree cash versus credit is better when shopping. Prothero said studies show people spend more with credit, and using it leads to more impulse buying. “When you have to physically take money out of your wallet ... they tend to realize the money is gone,” he said. “Paying with cash tends to lead to more thoughtful decisions.” He said to leave the credit card at home and take only the amount of cash you plan to spend to the stores. If you find yourself with a credit card bill, cut your spending by bringing lunch to work, cancel magazines, use coupons at the grocery store and keep a change jar. If you have a card with a high interest rate, try transferring to a zero-interest-rate card ( is a good place to shop around) and those with low interest rates and no annual fees are the best option.

4. Start early for next year: It's hard to argue that the holidays catch you by surprise each winter, Peterson reasoned, so why not start planning for next year's shopping season in January? Start the new year by starting a holiday spending account and deposit a little money from each paycheck. Prothero said many banks even have accounts especially for holidays that allow patrons to use direct deposit. Then, in the fall, users are sent a check to spend for gifts.