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How to Control Holiday Spending

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The biggest shopping weekend of the year may be over, but if you're like most folks, your holiday spending has just begun. Before you let big-money purchases blow your budget, keep in mind that there are some simple tips you can follow to keep your spending under control.

A big time for spending money
After two tough years during the recession, early indications suggest that shoppers are back in force. Macy's (NYSE: M  ) , for instance, reported a 40% surge in the number of customers lined up at its flagship New York City store early Friday morning. Target (NYSE: TGT  ) and Staples (Nasdaq: SPLS  ) also reported encouraging traffic on Black Friday, thanks largely to big discounts.

In addition to the normal hordes of early morning shoppers over Thanksgiving weekend, many people are taking advantage of the convenience of online retail for their holiday shopping. eBay (Nasdaq: EBAY  ) reported that the volume of payments over its Paypal network rose 25% on Thanksgiving Day, and Amazon.com (Nasdaq: AMZN  ) had good success in its attempt to export the Black Friday tradition to Great Britain.

But even if you have your shopping done, you probably still have plenty of costs left to cover. Rising airfares have helped boost the bottom lines of United Continental (NYSE: UAL  ) and Delta Air Lines (NYSE: DAL  ) , but they mean more money out of your pocket if you have to travel around Thanksgiving or Christmas this year. Add to that a host of other miscellaneous year-end expenses, and it's easy to understand how difficult it is to keep control of your money flow during November and December.

What to do now
But even if things got a little out of hand over the weekend, it's not too late to get a better hold on your wallet for the rest of the season. Here's a three-step plan to get back on track for a financially sustainable December:

1. Tally up the damage.
The worst mistake that shoppers make isn't that they spend too much. Even if your spending has already gone over the top, the worst thing you could possibly do now is to close your eyes and stay in denial about it.

It's hard to fess up to financial mistakes. But unless you take a hard look at your financial condition and learn just how big a problem you have, you can't take smart steps to dig yourself out of the hole you're in. Conversely, once you know how much you owe, it's a lot easier to figure out exactly how you'll get any debt paid off and how much you really have left to spend for the rest of the season.

2. Get real.
If you're over-budget already, you might be tempted simply to say that you'll cut way back on the rest of your holiday expenses. But as attractive as a cold-turkey spending freeze may look from a money perspective, it's not realistic for most people.

Rather than setting yourself up for another failure if your overly ambitious cost-cutting plans backfire on you, figure out some fair estimates of how much you'll need to finish up your holiday list. In the end, you may find you spend less this way than you would if you backpedaled on bigger budget cuts.

3. Be smart about debt.
The most expensive way to finance your holiday season is with high-interest credit cards. Yet because cards are so convenient, many shoppers use them almost exclusively -- and deal with the aftermath all the way until the next holiday season rolls around.

If you're in this camp, do what you can to minimize your credit card debt for the rest of the season, but also take steps to fix things for next year. By setting a small amount of money aside from every paycheck in a special savings account dedicated to the holidays, you'll be able to accumulate enough money over the year to make the 2011 holiday season a lot easier from a financial perspective.

Be careful out there
An improving economy is good news for the nation as a whole. But to keep your own personal finances in good shape, you'll want to make sure you don't let economic optimism get out of line. With the right steps, you can keep a rein on your money, letting you enjoy the holidays without the financial pain that so often comes afterward.

Spending too much over the holidays can sabotage your retirement savings. Click here to read the Fool's new special report, The 7 Secrets to Salvage Your Retirement Today.

Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance.

Fool contributor Dan Caplinger does all his shopping on Procrastination Friday, Dec. 24. He doesn't own shares of the companies mentioned in this article. Amazon.com, eBay, and Staples are Motley Fool Stock Advisor recommendations. Motley Fool Options has recommended a bull call spread position on eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy made its list and checked it twice .


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 01, 2010, at 3:54 PM, lemoneater wrote:

    One way that I control holiday spending is by making simple crafts that I can give to co-workers. It is fun and a good way to guarantee I don't duplicate any other gift they're given.Otherwise getting 11 gifts could really add up. Also it gives business to Hobby Lobby and helps me with cash flow issues.

    Now that my siblings have children they understand that I'm not going to buy them gifts, but get gifts for the little munchkins instead.

    Some of my relatives know that I won't arrive with expensive presents, but I will do the vacuuming and other household tasks. They have never refused the gift of time.

    All this to say that your article is both timely and seasonal :)

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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