This Dave Ramsey quote reminds us that Christmas comes at the same time every year, and yet many people don’t plan for it in their budget. Did you know the average American spends $1,000 on Christmas gifts each year? This does not include spending on family meals, travel or decorations. Considering the average American has too much month left at the end of their money, it’s no surprise that most of us are stressed to the max during the holidays.
If you’d like to ditch the holiday money stress this year, you should use one of my favorite savings strategies. I use this myself and with all of my clients. It’s called the sinking funds strategy. Sinking funds are a way to save intentionally for things you know are going to happen. For example, instead of saving into one big savings account, you allocate savings to certain items.
The first step to using sinking funds is to figure out the savings goal. Think about all those items related to Christmas. Will you travel? How many gifts do you need to buy? Do you need new decorations this year? Now I would challenge you with these questions. What do you need to do versus what do you want to do? Do you really NEED new decorations? Do you NEED to have a 10-course meal for Christmas? Do you need to buy a toy for every single child in your family? Sinking funds are a reflection of your priorities. They are a way to intentionally align your savings goals with your priorities.
After you’ve determined what your savings goal is, now it’s time to get out the calculator! We’ve got five months until Christmas. So if you’d like to spend $1,000, save $200 per month and then voila! You have a fully-funded Christmas fund! No borrowing money to buy your kids toys!
One thing you should take into consideration is when would you like to purchase your gifts? Many Americans utilize Black Friday sales to buy their Christmas gifts. I’m always excited to get a good deal. If you prefer to purchase your gifts ahead of time versus at the last minute, then you’ll want to increase your savings per month to meet the four-month deadline from now until Black Friday. Simple as that.
So, lots to think about as you prepare for Christmas this year. If you’d like help setting up your sinking funds, I’d be happy to help. I help my clients hone their budgeting, saving and investing skills, all while living a life they love. Today is the best time to start. Let’s do this!
Mel the Money Coach $$$
Freedom Financial Coaching
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