Don’t Feed the Alligators

A Personal Finance Blog from a Small-Scale Landlord’s Perspective
Christmas Tree

Creative Commons License photo figure credit: SleepingBear

This week ScrapperMom and I started and finished our Christmas shopping.  This was rather easy given that we don’t have many for whom to shop, we budgeted for Christmas just after LAST Christmas, and we already had the money set aside for these gifts.

Several years ago, we agreed with our adult siblings that we would all concentrate our buying efforts on the children in the family.  Prior to this point, we, like most families, would simply trade a bunch of items that we thought others would like.  Sometimes a hint or two may have been dropped over a Labor Day barbeque or Thanksgiving dinner, but for the most part we were left to guessing.  As a result, we all often ended up with well intentioned gifts, most of which never quite lived up to their full potential.

Some might argue that the whole point of gift giving is to know enough about the person to whom your are giving the gift to give something that will truly be appreciated.  This is a great idea in principle, but my experience is that it rarely happens in real life.  Others might argue that it’s not about the gift itself, but rather the thought that counts.  This is also a nice sentiment, but results in a pile of “stuff” that may create guilt on the part of the recipient and resentment on the part of the giver.  Instead, we prefer to share experiences: watching the kids open their presents, sharing a nice meal, and just being all together.

A few years back, we also started setting a pretty strict limit on what we would spend per gift recipient.  The obvious and immediate reason for this is that it limited how much we could spend in total and kept us from going into debt to finance Christmas.  The longer term reason, however, is that it allows us to anticipate how much money we’re going to need to cover Christmas all year long.  Knowing this allows us to begin saving for Christmas next year almost as soon as Christmas is over this year.

Christmas Club” savings accounts are not a new concept, but have fallen out of favor lately with the more prevalent use of credit cards.  Christmas Clubs are simple savings accounts that allow you to allocate a certain dollar amount per paycheck, week, month, or some other period.  The key to the success of this type of account is that the money is automatically deducted from your regular income stream and set aside in an account that is relatively difficult to access.

Many banks and credit unions still offer Christmas Club (and Vacation) savings accounts.  Our Christmas Savings account resides at ING Direct as one of our sub-accounts.  This is not truly a traditional Christmas Club account, and it has some advantages and disadvantages.  The ING account allows us to make it automatic.  Every month, ING automatically transfers 1/12 of our total Christmas budget for the year to the Christmas account.  The ING account also pays interest, which many Club accounts don’t.  Many Club accounts also restrict access to the money in the account, forcing you to leave the money alone or pay a penalty.  This is good for forcing you to save, but bad if you really need to get access to the money for a dire emergency.  The ING account allows me year round access to my money, but since it does not sit at a bank that is involved in our day to day financial business, the temptation to tap into it is very low.

This year we budgeted $800 in total for Christmas, and deposited $66.67 per month at ING.  By early December we had $800.04 sitting in our account, ready to be spent.  We used our new reward card of choice, the American Express Blue Cash card, to make all of our purchases, and will pay off the balance in full when the bill arrives.  Since we actually came in a bit under budget, we will probably not adjust our budget for next Christmas, and will begin paying for it in early January.

How do you pay for Christmas?  Do you take on debt to do so, or are you a Christmas Club user?  Do you set a Christmas budget or spend as the mood strikes?  We’d like to hear about it in the Comments Section below.