How To Not Go Into Debt At Christmas

     When I was a much younger Mom, I loved going all out for my kids during the Christmas holidays - toys, clothes, experiences, good food, all the things. But usually, by the time December 25th actually rolled around, I would be a bundle of nerves. It was because I had made some financial mistakes that put my family's well-being at risk.

Back then, I didn't have a large income (still don't to this day) and planning ahead was not my strong suit. I utilized lay-away programs at stores to do the bulk of my holiday gift shopping. But that also usually meant that I ended up not paying the rent in order to make the holidays 'magical' for my kids. I'm guessing that my older children, who are all adults now, can't even remember a single gift they received before the age of ten. I was risking our home in order to over spend.

Yes, I was the problem. Because I came from a childhood of poverty, I never wanted my kids to feel like they were too 'poor' to get good stuff for the holiday. This was one of the many facets of the unhealthy relationship I had with money.

Then, one year, a friend of mine was explaining her budget to me and there was a line that stated 'Christmas Club'. Curious, I asked her what that was. She told me that it was something her mother used to do and had passed along to her. 

Christmas Club was a bank and credit union marketed special purpose savings account. Customers would deposit a set amount of money every week into a savings account, and at the end of the year, they would get the money back at the end of the year for Christmas shopping. They fell out of popularity with customers as they often offered low interest rates and high fees.

The theory of the short-term savings account was a good one though. In today's financial circles, this would be called a sinking fund.

A sinking fund is a savings account dedicated to a specific expense that you know if coming. Like holiday gift shopping or a larger purchase you want to make.

I use sinking funds to save up for all purchases that cannot be paid for in cash out of my regular bi-weekly budget. I have funds in different savings accounts for:

• Holiday spending
• Car repairs, maintenance and new tires
• Large purchases like new mattresses or appliances
• Vacations/Staycations
• Any special purchases

In my biweekly or paycheque budget, I set aside a pre-determined amount to be transferred over to the appropriate sinking fund account. When payday hits, I know how much to transfer and do this before paying bills. 

For my holiday budget, I estimate what I can reasonably afford to spend on gifts and extras - usually in the $1200 - $1500 range. I pick the higher amount as my goal, and divide by how many paycheques are between the time I start (usually in January) and the goal date (usually first week of December). It usually ends up being around 24 pay days, and I subtract a couple because, you know, life happens and I may not be able to put the money in on one or two occasions.

So, $1500/22 = $68.18 per paycheque to save. I'll either round up, or down, whichever makes the most sense, so for this example rounding up to $70 per paycheque seems about right.

If I save $70 at least 22 times, I will have $1540 in cash available for holiday spending.

What I end up doing is adding extra to it when I get any amount of money coming in that I wasn't expecting - a tax refund, a cash rebate, the Toonie I found in the parking lot. Anything that will get me to that goal faster. 

But even if I don't add anything extra throughout the year, and I am able to consistently save $70 per paycheque, I know I will have enough money by the beginning of December in order to do my holiday shopping.

Which is much smarter than not paying my rent for a month, and then taking months to catch up.

Do you use sinking funds for the holidays? Have you ever tried this method? Let me know in the comments.