Six Smart Ways to Save Money during the Holidays

The holidays are a joyous — and potentially expensive — time of year. In fact, last year, consumers said they planned to spend an average of $699 on gifts, but they admitted to shelling out an average of $811 instead, according to a Consumer Reports survey. Gift giving doesn’t have to empty your wallet, however, if you follow these tips from the California Society of CPAs (www.calcpa.org).

Start Early

If you’re going to lay out the $811 that the average consumer spent last year, you’ll see less of a bite out of your monthly budget if you divide that sum over the three months leading up to the holidays. Shopping ahead also allows you to put together careful plans about what you are going to buy, making it possible to avoid costly last-minute impulse purchases.

Pay Cash

If you decide in advance how much you want to spend, and leave the house with that amount in your pocket, there’s no way you can overspend, as long as you stick to cash outlays for all your purchases. Leave your plastic at home and vow to stop spending once you’ve used up your cash on hand.

Avoid Credit Card Sign-Up “Discounts”

When you’re making a purchase, have you ever been offered a 10 percent or 20 percent discount on your purchase if you open a store credit card account immediately? You’ll probably be receiving many such offers during the holiday season. And while they may be tempting, it’s best to avoid them. That’s because store credit cards often carry very high interest rates. If you run up a large balance, you may find yourself paying off interest charges that are much higher that any initial “discount” you receive.

Look Into Layaway

Usually, when people don’t have enough cash to make a purchase, they turn to a credit card. This year, consider another option: layaway. In a layaway plan, you typically put down a percentage of the item’s total cost, then pay off a little each week until you’ve covered the full price. At that point, the item is yours, and you don’t typically incur any interest cost. Layaway also prevents you from buying things you can’t really afford, so you won’t be paying off your holiday impulse spending well into the new year. To be sure you understand the process, it’s a good idea to ask for a written copy of the store’s layaway policy.

Watch Out for Warranties

When you purchase some items, particularly electronics, salespeople often urge you to buy an extended warranty that will cover necessary repairs or replacements down the road. Before agreeing, find out the total cost of the warranty. The deal you’re told will only cost a few dollars a month could end up costing hundreds of dollars over time once you add it up. It is almost always probably a better idea to set aside the money you would have spent on a warranty in an emergency fund so that you can buy a replacement if necessary.

Shop Sales Now

Once the holiday season is over, stores immediately discount all their seasonal merchandise, including gift wrap, greeting cards, decorations and more. That’s why it’s a great idea to extend your shopping past the holiday season and pick up everything you need for next year at sale prices. The 2011 shopping season is still a full year away, but you can already save money on some of the items you’ll need!  

Turn To Your Local CPA

Are you seeking advice about smart ways to spend your money? Remember that your local CPA can help. He or she can help you make decisions about all the financial questions you face.

Copyright 2010 American Institute of Certified Public Accountants.

The Money Management columns are a joint effort of the AICPA and the California Society of CPAs as part of the profession’s nationwide 360 Degrees of Financial Literacy program.

To listen to podcasts with more financial tips, go to http://www.calcpa.org/Content/community/financialempowerment.aspx.