Cash Flow Christmas

Hi guys! I want to take you back to a Christmas past. I was eagerly trying to finish my shopping early and find all of the perfect gifts for my loved ones. I wanted money to be no object, so if I found something that looked like the perfect gift, I bought it. My only plan was to just pay my credit off after all my shopping was done. No budget. No limit. Just shop and pay the bill later. Now, I want to make sure I’m very clear with my next statement here….

DON’T.  EVER.  DO.  THAT.

The vast majority of us were not born into an inheritance, and the vast majority of us are not independently wealthy. The ONLY time you have the freedom to shop and not pay attention  to how much you’re spending is when you get into one of those situations. Well…. maybe…. MAYBE.

The good thing about my indulgence was that I had the money to pay my credit card bill in full, but that did nothing to alleviate the sticker shock when I realized how much I really spent. Again, DO NOT DO THIS. It was a blessing that I already had the money to take care of the damage, but that was not a financially smart plan. It could have easily blown up in my face and become something that took years to recover from. The only reason why it didn’t is because I did make smart financial decisions BEFORE that shopping spree and had some money saved to pull from later.

Now, I’m not saying that you can’t ever buy what you want because you absolutely can. You just need to plan for it. I’ve learned that the best plans are the ones made in advance. If there’s one thing you should not be playing with, it’s your money. Do not make rushed decisions, and do not make last-minute decisions when it comes to your finances. (Or anything really, but we’re sticking with finances right now.) Give yourself time to reasonably save for whatever gift or other purchase goal you have. I still try to find that perfect gift for my loved ones, but several things have changed.

1. I made a plan.  I sat down and thought through all of the gift-giving opportunities I have in a year – birthdays, anniversaries, Christmas, everything – and wrote them down. Now, I see at a glance exactly who I want to buy gifts for in a year and how many times I’m going to do it. These moments are not going to sneak up on me and compel me to overspend. When something sneaks up on me, I may be less likely to spend time looking for a good deal and just buy something as quick as I can to make sure I’m able to get or send it in time for whatever event is coming up. I also set reminders on my phone about 2-3 weeks before each event to remind me to start looking in case I hadn’t started already.

2. I set limitations and made a budget.  This is probably THE most important step. A good budget is your friend, people! I set a limit for how much I wanted to spend for each event, making sure that it was something I could comfortably afford and built my budget around that.

3. I totaled it up & take small bites.  Once I knew how much I wanted to spend at each event, I totaled it then divided the total by the number of times I get paid in a year. I don’t set aside the full chunk of money all at once to pull from throughout the year. You certainly could if that works for you and your financial situation – could be good use of a tax refund for example – but it works best for me to consistently set aside smaller amounts and draw from that savings as needed. Like the saying goes, you eat an elephant one bite at a time. No matter which way you do it though, the point is that by the time an event rolls around, aim to already have cash set aside to buy the gifts.

That’s it! Easy peasy. So, when do you get started saving for next year’s Christmas gifts? Right now! Some people call this a holiday fund and start saving at the beginning of the year. I prefer to save for all gifts (for all recurring events, not just Christmas) year-round. I have a separate savings account and treat this money similar to an emergency fund. I put a little in from every paycheck and only pull from it when it’s time to buy a gift.

It’s really a great strategy for any purchase you have coming up though, not just gifts. Calculate the total cost, then figure out how much you can comfortable set aside from each paycheck to pay for it. You don’t have to put things on a credit card then make payments until it’s paid off. Turn that around. Set the money aside yourself, then cash flow your purchases. It may require patience and a little extra dedication, but you can do it. And if you use a savings account to store your money until you’re ready to use it, you’ll be earning some interest rather than paying interest to the credit card company – nice little bonus.

I encourage you to give this a try. You can cash flow your gifts or anything else for that matter with just a little advance planning. Just remember, a budget is your friend. It’s not a restriction on your money. It’s being intentional with your money and telling it where you want it to go. Rather than wondering where your money went (like I did at first!), you’re giving a purpose for every dollar upfront. There’s peace of mind knowing that the money is there when you need it, and you don’t need to go into debt to take care of something. And let me tell you, that’s a good feeling!