Monday, December 07, 2009

Saving for Christmas

You'd think, from watching all the coverage that "holiday living" gets on the news shows, that someone somewhere would talk about the proper way to save for Christmas.

But no. All I see is advice on how to spend for Christmas.

In my opinion, the money gurus universally miss the boat here, and I'm not sure why. Not a one of them that I've seen talks about saving up for Christmas throughout the year.

Even my guy Dave Ramsey, in a cliché-drenched appearance on Good Morning America last week, advised GMA's financially-stressed viewership that the proper way to handle Christmas expenses was to "spend cash."

"When you go shopping for Christmas gifts, take along an envelope with cash in it," he said. "When the cash is gone, go home."

Well, yeah. Okay.

The GMA host, of course, gushed at the "Why didn't I think of that?" brilliance of this idea, at its cleverness and — dare I say — mono-syllabic zing. She treated this utterance from Dave as sheer genius.

I, on the other hand, threw up just a little.

For Joe and Jane Sixpack, where, pray tell, will this cash come from?

This whole "spend cash" mantra implies that most people can cash-flow their Christmas expenses simply by allocating some portion of their December income to it. Pardon me for being slightly dubious here, especially when recent surveys suggest that 61 percent of us live paycheck-to-paycheck.

I say the cash-flow thing is "implied" because NO ONE specifically refers to the process by which folks could GUARANTEE that they have COLD HARD CASH saved up and ready to cover all their holiday gift-giving needs. I mean, I know it's difficult to turn down offers like this...

... so that when Christmas 2010 rolls around, you'll still be six months short of paying for Christmas 2009.

(Wanna guess why the credit union above shows that ad rather than one for their "Christmas Club" savings account? Gee, I can't imagine.)

The saving process I'm talking about is what Mary Hunt refers to as Freedom Accounting. And if you're one of those crazy people who wants to avoid going into debt for Christmas — why do you hate America, anyway? — then it is like gold.

I wrote the following in last year's Saving for Christmas post:

Barring some really staggering developments, Christmas is going to happen next year, too, on December 25. If your Christmas, like mine, involves spending money, then you should be preparing for this right now.

Here's what I've figured out: During recent years, my household has spent roughly $1k per year on gifts. This includes Christmas, birthdays, and other incidental gift-giving expenses. Therefore, I've made it an iron-clad habit to set aside $80 per month for just this purpose. (Well, this gets me to $960, which is close enough for our needs.)

That's the secret: Treat your gift-giving as a bill, like any other, and pay yourself for it (i.e., save up) in advance, every month. Keep this money in a separate savings account. Track it in Quicken, or in an Excel spreadsheet like ExcelGeek's Freedom Account spreadsheet. Or live on the edge and create your own. Whatever method works for you ... well, do that.

Just do yourself a favor and start saving now for Christmas 2010!

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— Posted by Michael @ 8:17 AM


On October 1st my $1400 Christmas spending account was fully funded. It was just a matter of letting my wife know she could start distributing it to the local merchants. :-) In January of 2010 I'll once again start putting money in my "spent forward" account earmarked for Christmas 2010. The loan ad is disgusting - 18 Months - next Christimas they'll let you borrow $5000 so you can dig yourself deeper into that hole.


I've been thinking about using my Roth IRA for storing my 2nd-tier savings, Christmas or otherwise. I haven't contributed much too it in recent years because all my available retirement contributions have gone into my 401k instead. So the poor Roth just sits there neglected.

But a (non-deductible) Roth IRA has one real interesting feature. You can withdraw any part of your contributions (but not earnings) at any time tax/penalty free. So it seems like a good place to park 2nd-tier savings, including longer-term stuff that i'm, say, accumulating for the next car several years down the road. And the interest accumulates tax-deferred. The current annual contribution limit of $5000/year is more than adequate for me.

Of course, if one is already using their IRA contribution limit for what it's supposed to be used for, then this option isn't available.

And if the government changes the IRA rules down the road (always a real danger), then there may be some unexpected surprises, though there's typically grandfathering exceptions allowed.


My FSA serves as my Christmas fund. I am a single parent of one child, so that $360 just about covers gifts for my daughter and the few gifts that I buy for other family members and coworkers. I'm sure this wouldn't work for everyone, but it works for me!


I've been doing a Christmas Club account at my credit union for a few years now. I save well over a thousand dollars so that we can put money into savings for all the various gifts that will need to be purchased throughout the year. Makes the holiday much less stressful.

Anonymous Anonymous
, at 9:54 PM, January 20, 2010  

It really does take the headache out of it if you use a Freedom Fund to help with Xmas.

It makes me wonder how I did it before...oh yeah, with DEBT!

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Thoughts on my personal finances, goals, experiences, motivations, and accomplishments (or lack thereof).

My financial life began turning around when I took responsibility for it.
— Dave Ramsey


Start (2005-12): ~$21,900
Currently: $0
[About Our Debt Paydown]


Savings Goal: $15,000
Currently: ~$15,115
[About Our Liquid Savings Goal]