Money for Christmas

Paul Clitheroe.

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WE certainly live in interesting times.

The run up to Christmas is traditionally a period of big spending - and in some cases, overspending. But recent research shows that this year, many Australians are putting saving or debt reduction ahead of festive season spending.

According to ING DIRECT's latest Household Financial Wellbeing Index, 28% of Australians are planning to loosen their purse strings in the lead up to Christmas.

But here's the interesting thing. The same proportion of households (28%) say they'd prefer to knuckle down and pay off debt rather than go to town with Christmas spending. And a further 37% say they want to get debt under control before they kick start household spending

Does it mean we should all expect an empty space under the tree on Christmas morning? I doubt it. I suspect that over the weeks ahead, many of us will get into the Christmas spirit and relax household budgets for a while at least That's not entirely a bad thing - after all life is meant to be enjoyed. But the key is to take a controlled approach.

Getting in early with your Christmas shopping for instance, lets you take advantage of lay-by - and there's still time.

Some stores may charge a small fee for this but the beauty of lay-by is that you can pay off purchases at a pace that suits your budget. You won't face any of the high interest charges associated with credit card debt, and the goods can be held in-store until close to Christmas Day. It's an option that ticks a lot of boxes when it comes to keeping debt under control.

In terms of meeting savings goals, it's worth casting your net wide to take advantage of lower prices.

Shopping online is an easy way to compare prices and save but it pays to make sure you're dealing with a reputable site. Always allow for freight charges or foreign exchange differences if you're buying from an offshore retailer.

If you're committed to keeping a rein on spending over the holiday season, a sensible step is to draft a Christmas budget. And no friend or relative worth their salt is going to care if the price of the gift you gave is modest.

Where possible, stick to your normal financial regime over the coming festive season. Pay a bit extra off debts including your home loan and credit card, and tuck any spare cash into a high interest savings account.

Christmas is a big deal - and a terrific time of year. But the golden rule is that you don't have to put your finances through the wringer to have fun.

For more on smart ways to buy, and tips on paying off debt sooner, take a look at my book Making Money.

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money magazine. Visit www.paulsmoney.com.au for more information.