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Save or borrow for Xmas

Should You Save Up Or Borrow Money For Christmas?

As the weather outside turns pretty firmly from summer to autumn, many of us start thinking ahead to the festive season – what we’ll eat, who we need to buy presents for, and how we’re going to finance it. According to the Money Advice Service, the average household spends about £500 on Christmas-related stuff every year. This includes food, presents, decorations, and other celebrations, and although 2020’s Christmas is shaping up to be a bit different to previous years, what we might not be able to do in celebrations with friends and family, we’ll no doubt make up for elsewhere.

But, however you spend it, £500 is a good few smackeroos to have to get together in the first place, and if you’re thinking about how to get together the money for Christmas, it’s well worth thinking about the pros and cons of your different options. Will you just wrap your Christmas spending into your usual budget? Save up and do one, big shop in mid-December, or borrow money to cover the costs and pay it back later? Maybe you’ll do a bit of all three!

Wrapping your spending into your usual budget

If you’re the kind of person who likes to pick up gifts for people as and when you see them throughout the year, then you probably already have a stash of presents ready to go that you bought without really budgeting for them specifically. And, if you’re thinking of doing your Christmas shopping this way but haven’t started yet, it’s never too late.

The main advantage of doing your Christmas shopping by spending little and often on Christmas gifts, decorations and so on throughout the year is that it helps spread the cost and the stress, and come December there’s not much left to organise, do, or spend. It also means you can make the most of sales and deals as and when you see them to snag gifts for your nearest and dearest at bargain prices.

But, on the flipside, spending little and often from your regular budget can mean it’s easy to lose track of what you’ve spent and on whom. This can cause problems if, by December, you’ve bought way more presents for one friend or relative than another. Or, maybe you bought something for someone in January, and now they’ve already bought it for themselves, or worse, you can’t remember who you bought it for! Doing your spending throughout the year can also be a bit of a shock when you do come to tot up the cost of your Christmas at the end of the year, too. All those little spends here and there can seriously add up.

If you want to tackle your Christmas shopping without setting any particular money aside for it, then we recommend getting a good spreadsheet or list-based system in place and tracking your spending on each person, and overall, as you go. If you have ideas for gifts for different people, you can jot them down and tick them off when you buy them, or, if you end up getting them something else, swap them out to make sure you don’t end up spending way more on one person than another. Then, hopefully, your end of year Christmas bill won’t be such a shock!

Saving up for Christmas

Rather than doing bits and pieces of shopping throughout the year, lots of people quite enjoy making an occasion out of their Christmas shopping and doing it all in December. But, covering the cost of presents, food, decorations and potentially being out and about celebrating, too, is a lot to do from one month’s wages or salary. So, instead of spending as you go along throughout the year, saving that money up instead can leave you with a decent wedge to spend without having to re-hash your budget.

The earlier you start saving, the less you’ll have to save each week or month to hit your Christmas savings goal, if you have one. Or, if you want as big a pot as possible, starting sooner means you have more time to get a sizeable sum together. But, even if you only start saving in early October, you still have time to get a pretty healthy savings pot together by the time you need to hit the shops. If you’re aiming for that £500 savings pot, you’ll need to save up £50 a week from the start of October to hit your target by mid-December, which might be a bit of a stretch. But, even saving £10 a week means you’ll have about £100 saved up by the time you need to hit the shops, which could be a big help towards the costs of the gifts you need to buy, the Christmas food shop, and your decorations.

Need help working out your savings goal? Check out our guide to goal-setting!

Saving up for Christmas has some obvious advantages. You’ll have a set pot to spend from, so are unlikely to accidentally blow your budget by not keeping tabs, like people who spend throughout the year can do. And, because the money you’re spending is all your own and not borrowed, you won’t be faced with a bill, and potentially interest charges to boot, that have to be repaid later, perhaps at a time when you can’t afford it any better than you can now.

 But, saving up to do your Christmas shopping as close to the big day as you can also has its downsides. If you aren’t planning to start your shopping until you’ve hit your savings target, then you might miss out on opportunities to nail your gift list for less, like mid-season sales that tend to come up in September and October time, or the big Black Friday and Cyber Monday sales events at the end of November.  

Borrowing at Christmas

If you haven’t been spending a little bit here and there throughout the year, and know you can’t save up enough to cover all your Christmas costs between now and December, then borrowing money to do all your Christmas-related spending probably looks pretty appealing. Perhaps you’re planning on using a credit card you’ve already got to do your Christmas shopping, or maybe you need to apply for a new one before you can start ticking things off your “to buy” list.

Doing your Christmas shopping on a credit card certainly has its advantages. You can spend now, and then spread the cost over the months to come so that it makes less of a dent in your budget. And, if you’re buying expensive gifts – over £100 each but less than £30,000 – for people, then buying them using a credit card will give you the additional protection of Section 75 of the Consumer Credit Act in the unlikely event that something goes wrong and your purchase arrives broken, isn’t what you expected, or never turns up at all. You can read more about Section 75 and how it can protect you in our guide.

But, there are also plenty of potential downsides to consider if you’re using an existing credit card, or applying for a new one to cover the cost of Christmas this year. One of them is the timing – if you’re applying for a new card, then remember that you can’t usually use it until it’s arrived with you through the post. And, this can take a few days – maybe longer at busy times of year. So, applying for a new credit card on December 1st with a goal of using it for all your Christmas shopping probably won’t pan out. If you’re going to, apply sooner rather than later to allow plenty of time for your card to arrive, and for you to shop with it.

Another consideration that’s worth bearing in mind is that while being able to spread the cost can be a huge advantage, it can also lead to a “spend now, worry about it later” mentality, where you splash the cash, and how you pay it back is a problem for next year’s you. Even if you’re using a credit card to cover your Christmas costs, it’s a good idea to stick to a budget to help you keep your spending – and what you eventually have to pay back – to what you know you can afford to repay.

But, the main thing to remember about spending on a credit card is that it is borrowing money, and, unless you’ve got – or are getting – a 0% interest deal on purchases, there’ll be interest to pay back as well as what you spend. Credit card interest, even on a low APR card, can stack up over time, so it’s important to check what the rate is, or will be, on your card, and make sure you have a plan to clear your balance as quickly as you can to keep charges down.

Even if you have, or will be getting a 0% interest deal, make sure you know when this deal ends. Then, make sure have a plan to repay anything you spend on the card before the end of the 0% period or, if this isn’t doable, as soon as possible after, to minimise the amount of interest you have to pay.

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