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Holiday planning makes the most of budget

The National Retail Federation says consumers as a whole plan to increase their gift spending five percent this year. But for young adults, whose already tight budgets are particularly vulnerable to price swings, the squeeze is on this winter.

Young adults ages 25 to 34 expect to increase their gift-giving budget this season by only one percent, a recent NRF survey found. By comparison, that same age group boosted their holiday gift spending nearly 13 percent from 2003 to 2004.

Higher fuel and energy prices will deplete their discretionary incomes, as will rising airfares if they plan to travel home for the holidays. Leisure fares rose 11 percent this fall, and experts predict another 10 percent to 15 percent boost in the cheapest tickets over the holidays.

But don't resign yourself to a blue Christmas just yet. If you anticipate higher costs this year, you can spend smart and still avoid starting the New Year buried in debt. All it takes is a little planning. Take the time now before the shopping season is in full swing to devise a strategy for giving, entertaining and traveling within your budget.

Fail to plan, plan to fail

Thanksgiving is the traditional kick-off to the holiday season, so start planning soon. The longer you wait, the more you're prone to give in to stress, make impulse purchases, blow your budget or even buy a lame gift you never would have bought had you the time to think better of it, says Joshua Klapow, a clinical psychologist and associate professor at University of Alabama at Birmingham. After all, retailers spend months preparing to create an environment that will encourage you to spend, spend, spend. Walking into the mall at the last minute without a budget or a spending plan sets you up for failure.

It's important to look at your holiday spending as you would any other big-ticket venture, advises Klapow. “In any behavior or any event that has significant consequences, we tend to have an action plan,” he said. “Why should holiday spending be any different?”

The average 25- to 34-year-old plans to spend more than $1,000 on gifts, travel and entertaining, according to a recent survey by Deloitte & Touche. If you were going to spend that much on a single item, you'd probably do a bit of research. With holiday shopping you're splitting the cost among a variety of expenses, but the bottom line is still the same — you're plunking down a huge amount of money in a short period of time.

Granted, creating a holiday budget and spending plan may seem about as painful as stringing holiday lights on your roof in the middle of an ice storm, but it won't take nearly as long. You can come up with a simple and successful strategy in a matter of minutes, said Klapow.

Write down the amount you want to spend in each category of holiday expenses. Gifts are only the beginning — don't forget to account for travel costs, postage and shipping, decorating, greeting cards, entertainment and photos.

Write down the names of people you want to shop for under the gift category.

then divide up your budget accordingly.

Jot down any gift ideas that you might have for the people on your list. Then you can research products and comparison shop online before heading to the store. (Don't forget to include shipping costs in your calculations if you decide to buy online.)

Use this Holiday Spending Worksheet to help you get organized and ensure you don't overlook any expenses. Simply plug in how much you want to spend. (Don't forget to factor in travel costs under "other.")

Set realistic expectations

Many people feel pressure during the holidays to give beyond their means, especially young adults. We feel we have to prove our success to our friends and families, even if we're barely scraping by on an entry-level salary.

Try to limit your budget to what you can afford right now. Overindulging on credit cards during the holidays will only give you a financial hangover in the New Year. Consider this: If you plan to charge $500 on a card at 18% interest, it would take you seven years -- and cost $365 in interest -- to pay it off if you pay the minimum each month.

If you must use a credit card, set up a strategy to pay it off within three months, advises Howard Dvorkin, founder of Consolidated Credit Counseling Services. (Find out what it'll take to pay off your balance.)

Communication is key in keeping your holiday gift budget in check. If you're feeling the pressure, chances are others feel the same way, says Klapow. Bring up the topic at Thanksgiving this year. Your loved-ones will probably be relieved to cut back on their shopping too. Consider setting a dollar limit on gifts or drawing names among extended family, roommates or co-workers.

Beyond the gifts

Young adults plan to spend about $500 on gifts this year, but travel and entertainment costs can easily get out of control, too. Adults ages 25 to 34 will spend about $535 on those two expenses, according to the Deloitte & Touche survey. And 18- to 24-year-olds plan to spend more than $900.

With airlines cutting flights and raising prices to stay aloft, procrastinators will have a hard time snagging last-minute bargains this year. And with Christmas and New Year's Day falling on Sunday, travel will be compressed into fewer days, putting even more pressure on fares to go higher, says Bob Harrell, president of Harrell Associates, which tracks airfares. So don't wait to buy your ticket.

And make sure you check more than one travel search site. Not all airlines participate on Orbitz, Travelocity and Expedia, so it's a good idea to check them all, including discount airlines' Web sites. Carriers such as JetBlue and Southwest Airlines advertise fares only on their sites.

If you can't afford to fly this year, book a bus or train ticket ASAP. Or you could drive yourself. Gas prices have come down from record highs and currently average around $2.30. Start spreading the word among friends, relatives and co-workers that you plan to drive. You might be able to find a co-pilot and split the cost.

A little forethought and creativity can also help you keep your entertainment costs under control. Consider inviting guests to bring something to share at a potluck dinner. Or you could serve a brunch, throw a fondu party or host a wine and cheese tasting instead of a full-blown meal. You could even co-host a party with a friend or family member to share the cost.

Approach your party plans the same as your gift budget: Set a dollar limit for your soirée. Then make a list of items, ingredients and décor you'll need and how much each will cost. Making your plans ahead of time will not only help you keep costs down, but your stress level as well.

Reward yourself

Once the holidays are in full swing and you're surrounded by the sights and sounds of the season, it can be easy to blow even the best-laid plan. So give yourself an incentive. Include in your budget a little something to treat yourself if -- and only if -- you stay in bounds, advises Klapow. "You can use the money to buy something for yourself, something extra for someone else or donate it to charity," he says.


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