Saving for Christmas in June may seem like a funny thing to do, but in this week’s Finance Friday, Jennifer shares why saving money is serious business.
Saving for Christmas in June
Although Christmas is still six months away, it will be here soon. If you plan now, you can start saving so you won’t be hit with large credit card bills in January. Christmas comes at the same time every year, but most people don’t plan for it. Saving now will make Christmas less stressful. I cannot guarantee any stress… just less financial stress.
The tradition of Christmas gift giving started with Jesus. The Wisemen brought gifts to Jesus. Matthew 2:1-13 records the story of the wisemen traveling to honor Jesus.
“And going into the house, they saw the child with Mary his mother, and they fell down and worshiped him. Then, opening their treasures, they offered him gifts, gold and frankincense and myrrh.”
They brought three treasures to give to Jesus, the Son of God. Since this time gift giving has changed. Now people give gifts to family and friends, to teachers, to neighbors, etc.
When saving for Christmas you need to have an idea about who you are going to buy for. My husband’s side is very small so we buy a gift for each person. This does not sound like a lot but it adds up very quickly. Every year I have to figure out what to get my husband’s parents. They are in a retirement home so they don’t need anything. But we still try to figure out a gift they would use, often a gift card or a donation to a charity. My side of the family is larger, so a few years ago we decided to draw names. This means some years I have to buy for a sister or for a nephew. Either way, we try to keep the cost reasonable, but those video games or gift cards still add up fast.
Beginning every January, I review what I spent on Christmas gifts the previous year. I take that amount and add about 5% for inflation. Then I take that amount and divide it by 11. Why eleven? Because I have to ship gifts to people which means buying in November to make sure they arrive in time for Christmas.
Back in the ’50s, you could open a Christmas club account at the local bank. You had to put $5 per month into it. Then at Christmas, you would withdraw all your principle and your interest to use for gifts. Then reopen it in January to restart the savings. $5 back in the ’50s was often a full tank of gas or food for a week. Now saving $5 a month might help but prices have gone up since then. Starting to save in January will make Christmas easier.
However, if you did not start in January, start saving now and you will have saved at least something to make paying for Christmas easier.
You can also start now to plan ahead for other programmed annual expenses.
Birthdays come at the same time every year. Budgeting a set amount per person will allow you to save money for birthday gifts and parties. One of my friends does a party every other year for each child. She has four, so that means two parties a year. The year they do not have a party the child gets to pick a day trip for the family. She gives them an amount for the day trip, which can be used for food, entrance fees, or gas. The child must then plan the trip and figure out the cost of the day. The children have great memories of these birthday trips. Most years they would rather have a trip than a gift but trips can cost more. Some trips are free like museums or a picnic in a park. Others have more cost like an amusement park.
Other events like graduations, weddings, or baby showers can be unexpected but having savings for “gifts” will allow you to give appropriately. We also have a line in our budget that says “fun money”. We can use it each month for whatever we want. Some months we use it for additional gifts like in May when we have many graduation announcements show up from friends all over the nation.
This system of saving early also works for expected expenses as well as unexpected car expenses.
Car repairs most of the time are unexpected expenses. If you save $20 per month for car repairs you would have $240 each year. Replacing a car is not an unexpected expense. However, most people do not save ahead for it. People will take out a loan or a lease to get a new car. If you have a loan or a lease on your car when you pay it off take that same amount and save it monthly. Then in three to five years, you would have saved enough to buy your next car with cash saving you the interest. Then you keep saving that amount and you will always pay cash for your cars. This will save you thousands over your lifetime.
I am often asked if I have different savings accounts for different lines on our budget. I do save for new cars in a money market mutual fund, which gains more interest. Since we won’t need it for three to five years it will earn more interest than a traditional savings account. I also have a savings account for Christmas and gifts. All the rest of the lines in my budget like “replace furniture” or “car repairs” go into one account, and I track how much we set aside for each line. This may be challenging for those new to budgeting, but after a short time, it will get easier.
As you think about savings you should have three to six months of living expenses saved in an account, which can be accessed in case of need.
This money is important for everyone. Often military members think they do not need to have this type of savings since the government pays them. However, for the last few years when there was no budget and no continuing resolution, it took a last-minute deal to get the military paid. Having three to six months saved means less worry in case there is a problem with your paychecks.
This peace of mind means you can focus on your work and your family rather than your bank account.
Having sufficient savings takes the stress and worry out of unexpected expenses. As Christian women, God calls us to be good stewards of and bless others with the resources He provides for us. The smarter we are about money matters now, the fewer problems money will make for us in the future. How will you start saving for Christmas in June?
by Jennifer Wake
Don’t miss Jennifer’s two part series on preparing for college expenses.