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9 Tips for Sticking to a Holiday Budget

Think of a budget as a financial GPS," says Cate Williams, national spokeswoman for Money Management International, a nonprofit credit counseling agency with offices in 24 states. Drawing up a soup-to-nuts budget helps safeguard cash, without quenching the holiday spirit: "It makes us a cheerful giver because we're not spending money that should go to another expense," Williams says.

Holiday budgeting takes time, buy-in from the entire family and discipline. Here's a nine-step plan to make, and keep, a holiday budget.

1. Decide how much you can spend. Holiday money must come from your current disposable income. If you plan to spend money you don't have, prepare for a credit card bill that could take years to pay off. The National Retail Federation predicts consumers will spend an average of $688.87 on holiday-related expenses this year. If that amount is on a credit card with an 18 percent annual percentage rate (APR), and you pay the minimum payment of 4 percent due each month, it will take you three years to pay off the charges, and you'll pay an extra $203 in interest. (See our CreditCards.com payoff calculator to see how long it will take to pay off your credit card balance .)

Ideally, you've saved some holiday money. If not, cut back on extras such as movies, dinners out or coffee drinks until the holidays are over. "There are always things in a budget you can trim back," Williams says.

2. Budget for everything. "There are a lot of things people don't think about," says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies, a Fairfax, Va.-based accrediting agency for counseling firms. Gifts, the cost of shopping (gas, parking), decorations, food and drink for parties, greeting cards, postage for cards and out-of-town gifts, travel expenses, holiday-related apparel and charitable contributions should all be in the budget.

3. Make a complete gift list with the entire family present. The list should include everyone — relatives and friends, piano teachers and mail carriers — who must be acknowledged during the holiday season. And don't forget the office gift exchange.

4. Decide who's getting what. For each person, set a firm "no more than" purchase price for that gift. Be realistic: $50 might be enough for a terrycloth bathrobe from Sears, Williams says, but not for triple-ply cashmere.

If disposable income is tight, Jones suggests designating half the list "card-only people" and specifying "make or bake" gifts — cookies, pumpkin bread, handmade ornaments — for 40 percent of the remaining recipients. Such "from the heart" gifts are welcome, especially if children make them, he says.

5. Set expectations with family members, especially children. If gifts will be minimal, Williams advises telling children now, to bring their expectations in line and absolve parents of gift-giving guilt. Now is also the time to discuss reasonable and economically feasible gift-giving tactics with family and friends, such as grab bags, name exchanges or skipping gifts altogether. "Open up the dialogue," she says.

6. Start shopping now. Late November and December bring sales, but they also bring crowds and pressure to get shopping (and wrapping and mailing) done.

Donna Thomas-Rodgers, 37, a leadership consultant who lives in Birmingham, Ala., expects to finish her shopping well before "Black Friday," the Friday after Thanksgiving, the day the winter holidays traditionally begin. Thomas-Rodgers is shopping now and getting bargains. "Right now, so many items are on sale and nobody's really thinking about it," she says. One example: She bought her daughter a new bedspread, originally $50, for $19.97 at Target.

To stay within her $1,000 holiday budget, Thomas-Rodgers signs up for e-mail alerts from retailers to get a heads-up on big sales. She saves money and time and reduces stress by not wrapping gifts. And seven years ago, when her daughter was born on Dec. 12, she stopped giving gifts to family members. "I told them, I'm a parent now and my daughter is my priority,'" Thomas-Rodgers recalls. "They understood."

7. Check your emotions at the store door. "Gift-giving deals with emotion, and emotion and spending don't go hand in hand," says Ornella Grosz, the Atlanta-based author of "Moneylicious: A Financial Clue for Generation Y." To keep the feelings out of shopping, Grosz suggests keeping a list of other financial obligations — credit card debt , car payments, mortgage payments — on a slip of paper in your wallet. When tempted to overspend, remind yourself of what you owe.

Grosz also suggests shopping when pressed for time; less time in a store usually means fewer purchases. Shopping with a trusted friend who will firmly guide you away from the sale tables, and shopping with cash only can also help curb impulse purchases.

8. Work sales, don't let them work you. If a gift on your list is on sale, buy it. If it's not, "you're buying stuff not on the list and you'll go over budget," says Joseph Montanaro, a certified financial planner at USAA, a San Antonio-based financial services firm.

9. Keep track of spending. "Cash is king," Montanaro says. "It's very easy to stretch the budget with credit cards." He and others suggest "the envelope trick," giving each household member her or his holiday budget in cash, in an envelope: When the money's gone, it's gone.

If you use credit cards for convenience, hold a weekly reckoning with yourself, your spouse and your credit card receipts to make sure nobody's going overboard.

Montanaro suggests paying off holiday credit card debt quickly, in three months if possible. Yes, you'll still pay interest, but it won't be egregious. Consider the following: paid off over three months, $750 on a credit card with 18 percent interest will cost a total of $772.60. (Use the CreditCards.com payoff calculator to calculate your own scenarios.)

Your best bet: Pay it off in one lump sum. "Don't handicap yourself as you go into the new year," Montanaro says. "It's all about putting yourself in the position to be financially successful."