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Couples and the Christmas Cash Crunch

Nowadays, retailers trot out Christmas fare even before Halloween's corpses have gone cold. Kohl's (NYSE: KSS  ) , Target (NYSE: TGT  ) , and Wal-Mart (NYSE: WMT  ) have already erected yuletide displays. The advertising hoopla, combined with the intense pressure to "give your family the holiday they deserve," is enough to drive the most agreeable and communicative couples into the Boxing Day ring.

As a couple with three kids and a horde of relatives, we know what the holidays can do to a family's net worth. Every year, we experience some post-Christmas remorse, thinking that if only we'd planned more or communicated better about our gift-buying, we wouldn't be so shocked by the final tally. And we always underallocate funds for gift-buying in our regular budget, somehow ignoring or afraid to face what we really spend.

We're trying this year to deal with this problem beforehand, though we're already getting carried away by the vision of our kids' faces on a present-filled Christmas morning. ("Wouldn't we make Noelle's Christmas by giving her a wooden play kitchen? Jocelyn would be so happy with an American Girls Tall-Post Bed with Tester. And Lukas will love playing Hot Wheels Race Track -- as soon as Dad is done.")

What are the major sticking points at gift-giving time? Here are just a few of the seasonal considerations that, undiscussed, can have you and your spouse seeing far more red than silver and gold.

How much should we spend on gifts?
The answer to this question can get mega-complicated, often pitting childhood memories and tradition against the cold, hard numbers of a budget. The fact is that most people overspend at the holidays for emotional reasons -- to recreate the holidays they had as a kid, to fulfill their childhood dreams of a holiday that never was, to give their child the best of everything.

To address these emotional pulls without overspending, first go purely with numbers. How much can you actually afford to spend over the next couple of months without compromising your food, shelter, education, retirement, and general well-being?

If you are paying with credit cards, how long will it take you to pay them off? By the time most people have paid off the holidays, it's July and interest charges have added 20% to the final price tag. This is a situation you definitely want to avoid. (For more on the wise use of borrowing, visit our Credit Center.)

And once you and your spouse agree on a number, no fair secretly spending or rationalizing excess spending. This takes commitment.

Who are we giving gifts to?
To a certain extent, you can look to your bank account to dictate how wide your gift-giving circle will become. Break your list of gift recipients into tiers: definites, maybes, and the if-we-won-the-lottery group. Decide what you will purchase (or make!) for the definites, then see where you are budget-wise after that.

Expanding your list of possible gifts to include homemade items or gifts of time, service, or thoughtfulness can stretch your budget much farther and is a lot more fun. Many gifts of great sentimental value aren't expensive -- think framed photos, picture calendars, etc. -- and can help expand your gift-giving net to a much wider group of family and friends. A bonus is that you're teaching kids by example that thoughtfulness is more important than sticker price.

For a list of great, low-cost gifts, see Saving Money on Gifts and the Living Below Your Means discussion board. (By the way, if it's the thought that counts, Aunt Ethel, the thought of your fruit loaf is more than enough gift for us.)

What's a reasonable amount to spend on an average gift?
If you're really being good about the budget, this one will take care of itself. It's when you get a wee bit tempted by the great deal on the room-sized air hockey table at Costco (Nasdaq: COST  ) that things get dicey. Be good and consult with your spouse first. If he or she agrees to the purchase, despite the sticker price, then figure out how the purchase will affect your overall financial picture.

Sometimes you might just have to (gasp) tell yourself no -- or decide that this gift is a better choice than others planned for or already bought (in which case, dig up the receipt and get in the "Returns" line).

How many gifts to our kids? To each other?
You can take a cue from (you guessed it) your budget, but this can be a philosophical question as well as financial. Even those with unlimited funds don't always want to shower their kids with as many gifts as they can afford.

Start by reviewing your purchases from last year. How many of those gifts were actually appreciated after the wrapping was discarded? Last Christmas, our then-two-year-old son opened only five of his 10 gifts and quit; he was perfectly happy with the bunch he had opened, wanted to play with them, and was signaling that he had enough. We packed the rest away for another special occasion.

How much should we spend on the trappings?
The holidays aren't just about presents. You may also have to pay for travel, decorations, food, and party outfits. Make sure you factor extras like these into your calculation. They can really add up if you're not careful -- or you're purposefully looking the other way.

After the numbers
Besides the benefit of spreading out your expenses, planning your holiday purchases now also gives you more time to find the best deals. Once you and your spouse have agreed on how much you'll spend, hunt for bargains. Look for sales, let your fingers do the walking by calling stores, even visit a few flea markets and yard sales. And there's nothing like the Internet when it comes to finding the lowest price. Check out bargain sites such as Overstock.com (Nasdaq: OSTK  ) , DealCatcher, DealTime, Amazing-Bargains, Bluefly, MySimon.com, Froogle, and even eBay (Nasdaq: EBAY  ) -- as long as you get the merchandise from the seller, which is no guarantee.

We know that Christmas is the time for giving and celebrating, not abstaining and budgeting. But in the end, staying out of debt, saving for college, and funding your retirement are more important than propping up the Christmas tree with gifts that may not be appreciated in just a few months' time. So budget accordingly, purchase wisely, and have a Happy Halloween. And if you and your spouse need a little help in discussing money matters, check out our latest book, The Motley Fool's Guide to Couples and Cash.

Every year, the Brokamps compile a CD of Christmas carols for friends and family. It's a long-lasting and inexpensive gift, even though -- for all you recording industry attorneys who may be reading -- we paid for all the songs. Well, all except "I Want a Boob Job for Christmas." If you have a favorite Christmas song -- especially a unique one -- let us hear about it.


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