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Holiday budget planning should include more than gifts you're planning on giving

OTTAWA — A holiday spending plan is always a good idea, but as inflation pushes the cost of everything up and higher interest rates squeeze households, a budget is more important than ever.

Anne Arbour of the Credit Counselling Society says in a perfect world you would have started planning your holiday budgeting months ago, but it’s never too late.

In making a plan, Arbour says to begin by asking yourself how you want to feel in January and February when those bills come in.

“Do you want to have wonderful memories of time spent with family and friends and joy and laughter and some great food? Or do you want to feel stressed and exhausted and, quite frankly, financially stressed?" says Arbour, the society's director of strategic partnerships and education.

"It's not a great way to start the new year with a large credit card bill that you can't pay off in full."

Arbour says when making a list of who you're looking to buy a gift for and how much you want to spend, it's important to be very prescriptive.

But a holiday budget needs to include more than the cost of gifts you're hoping to give, so Arbour says it is important that you account for all of the extras of the season.

Cards, ribbons, gift wrap and shipping costs all add up.

A holiday budget should also include the cost of any entertaining you're planning to do as well as extra meals out and associated expenses for holiday parties such as special clothes and gifts for hosts.

The cost of travel can be a big one during the holidays, but even if you aren't boarding a plane to fly across the country, extra trips by car or taxi to visit friends, family and other gatherings can add up and need to be accounted for.

Worries about money can increase what is for many an already stressful time of the year.

A report by BMO said 78 per cent of Canadians plan to buy fewer gifts this holiday season, while 51 per cent said that thinking about holiday spending causes financial anxiety.

Thirty-seven per cent said they were not confident they would be able to afford every item on their holiday shopping list.

Gayle Ramsay, head of everyday banking, segment and customer growth at BMO, says when making a budget it is key to understand how you are spending your money today.

But making a budget is only the first step; you also need to follow your budget.

Ramsay says a lot of times people set budgets without taking the time to look at how they are currently spending their money.

"And that's usually where they actually have pitfalls," she says.

To do that, Ramsay says there are digital tools that are part of many mobile banking applications that allow you to monitor your spending and budget to help keep you on track.

With interest rates at their highest level in years, the consequences of going over your budget this year are also higher.

Interest rates for loans such as lines of credit that borrowers might use to pay unexpected bills, have gone up as the Bank of Canada has raised its key interest rate target in its fight against inflation. While not as high as the rates charged on credit cards, the rates charged on lines of credit are now far higher than what they were two years ago.

While the urge to be generous is strong during the holidays, Arbour says nobody wants a gift that is going to put the giver in debt.

"What are some things you can do that don't involve actually spending money. There are lots of ways to spend time with family and friends," she says.

This report by The Canadian Press was first published Dec. 7, 2023.

Craig Wong, The Canadian Press