Get your savings account ready for the holidays

By Sierra Black

Is your savings account ready for the coming holiday season? Learn how to stay in budget while celebrating this Christmas.

The winter holidays are approaching. However you celebrate, the weeks between Thanksgiving and New Year's are an exciting time of year, filled with parties, holidays, family gatherings and winter vacations. Are you ready? More importantly, is your savings account ready?

Whether it's playing Santa with gifts under the tree for your little ones or splurging on a new dress for the company Christmas party, the joys of the holiday season all come at a cost. How will you pay for yours?

Plan for the whole season

Often, when budgeting for "the holidays," we think of just one thing: Christmas shopping. Presents aren't the only unusual expense you'll encounter during the holidays, though. Here's a short list of things you may spend extra money on during this season:

  • Food & drink: From Thanksgiving dinner to champagne at New Year's Eve, you're likely to drop more cash at the grocery store during the holidays than any other time. Even if you're not doing any entertaining, you're likely to be bringing potluck dishes, bottles of wine and baked goods to share at the celebrations you attend.
  • Clothing: There's the company party. Dinner with your parents. Perhaps church on Christmas Eve. A New Year's Eve bash. The holiday season is full of excuses to dress up. Plus, for many of us, the weather is turning cold. Odds are good that between the parties and the plunging temperatures, you'll end up dropping at least a few dollars on new warm duds.
  • Travel: Many of us will travel to visit family over the winter break. Even if you don't hop on a plane, you may need to put more gas in your tank to drive to Grandma's, or to take a short vacation while the kids are out of school. Even an overnight New Year's Eve celebration at a bed and breakfast -- something my family did for years -- requires a budget.
  • Gifts: You will spend more on gifts than you planned. Probably a lot more. There's your holiday shopping list: spouse, kids, family. There's the social network you exchange small gifts with: a plate of cookies or a pair of hand-knit mittens still costs something. You'll spend money on the Secret Santa game at your office and a small gift for your child's teacher. No matter how thorough your holiday planning, something will crop up and you'll need to make some last-minute additions to your list. Just like you should always budget 20 percent more than you think you'll need for a trip, you should budget a little more than you actually plan to spend for holiday shopping.

Create your own "Christmas Club"

So how are you going to pay for all this? A lot of people just put it on their credit cards, and then spend the first months of the new year paying down their credit card balances at exorbitant interest rates. Get ahead of that cycle by saving the money before you spend, and you'll save yourself a lot of dough.

The simplest way to pay for your holiday fun is to plan ahead. In my grandmother's day, she'd put a little money into a passbook savings account called a "Christmas Club" each time she got paid. Right after Thanksgiving, she'd get the whole sum handed to her, and take it to the mall to buy Christmas gifts for her loved ones.

With modern banking, we can create our own Christmas Clubs while earning a little something extra on the money during the year. It's easy to set up an online savings account at a bank like INGDirect or a website like SmartyPig, where you can establish sub-accounts targeted to particular savings goals.

Figure out roughly what your holiday budget needs to be and break it down into weekly or monthly deposits. By putting these deposits aside each week in a high-interest savings account, you'll come into the holiday season with all the money you need. Your savings will earn interest, which is a lot better than paying interest on a credit card.

Starting late?

What if it's too late to plan ahead for this year? If you haven't put anything aside for the extra expenses the holidays bring up, you'll want to figure out ways to spend less. You can do this in two places: by cutting your holiday spending, and by cutting your regular expenses.

To cut back on regular expenses, look first at the luxury categories. Can you redirect the money you'd normally spend on entertainment or dining out, and instead put it into holiday celebrations? Next, see if you can find savings in your regular bills. Cutting back on premium cable channels or subscriptions could save you money not just this month but throughout the year.

Finally, reconsider your holiday budget. Maybe you don't really need a new dress for the New Year's Eve ball this year. Perhaps you can get some of your shopping done through a secondhand shop or discount retailer, and save on gifts. Look for clever and creative ways to cut back on your costs.

And make planning ahead for the holidays one of this year's New Year's resolutions.