How to Avoid a Holiday Finance Hangover

Here are steps to help you recover from your year-end shopping.

The amount of money Americans spend during the holidays is pretty incredible. In 2015, holiday retail sales totaled more than $630 billion, according to Statista. With so much money being spent, it makes sense why so many people find themselves in post-holiday debt. Indeed, according to the TD Bank Merry Money Survey, 78 percent of Americans have overspent on holiday purchases in the past.

Luckily for you, there are ways to save during the holidays without incurring serious damage. When it comes to recovering from your holiday spending hangover, “The magic is in the budget,” said Lauren Greutman, frugal-living expert and author of the book “The Recovering Spender.” But a budget is just one piece of a smart holiday spending plan, so here are seven steps to help you fully recover from your year-end shopping spree.

Get Preemptive With Your Spending Plan
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Step 1: Get Preemptive With Your Spending Plan

Not enough Americans make holiday budgets. Only 52 percent of Americans create a holiday budget, according to the TD Bank survey.

Planning is almost always essential to maintaining good financial standing. With holiday shopping and spending, this rule absolutely applies. “Set a budget and stick to it,” said Howard Schaffer of Offers.com. “After every shopping trip, log into your accounts to check your balances. Set up account alerts so you’re always reminded of your purchases.”

Make sure your plan is preemptive, so you have a good idea of how your shopping will affect your budget. Schaffer suggested setting a spending limit for each person that you’re buying presents for.

On top of a spending limit, plan out your holiday shopping as early as possible. “You should consider budgeting for Christmas starting in January,” said Barry Choi, personal finance and budget travel expert at Money We Have, a budget travel advice website. “Like anything else in your budget, set aside a set amount of every month so you’ll have the funds available for the holidays next year.”

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Be Honest With Yourself and Know Where You Stand Financially
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Step 2: Be Honest With Yourself and Know Where You Stand Financially

You can’t begin addressing your holiday spending issues without having a realistic picture of your finances. Realism requires honesty and for you to thoroughly evaluate your money.

“Print out the last three months of [your] spending,” said Greutman. “Separate everything into categories. Take an average of the past three months spending in each category. This is the number they will start within their budget.” In order to set your money on sure footing, you need to take into account financial factors beyond spending during the holiday season.

“It’s expected that we’ll spend more money during the holidays, but is there a way to cut back on expenses during this time?” said Choi. “Maybe that means you eat out less or stop buying coffee. Beyond that, how about your regular expenses? Maybe it’s time to renegotiate your cell phone and cable bills. Make some sacrifices.”

Plan How to Pay Off Your Debt
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Step 3: Make a Plan to Pay Off Your Debt

“The most effective way to mitigate the damage done by holiday overspending is to develop a strict plan for saving, paying off credit card purchases and reducing disposable spending in the post-holiday months,” said James Capolongo, head of consumer deposit products for TD Bank. But what are some techniques you can use to address debt incurred over the holidays?

Make a list of your holiday spending, and categorize purchases on a scale from the most important expenses down to the least important expense, said Greutman. “When [people] start to allocate their money, they should start with the most important category and then go down until they run out of money — if they do,” she said.

If you run out of money to allocate to certain categories, these expenses are the ones you need to focus on most to help you recover from the holidays.

Beware of After-Holiday Sales
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Step 4: Beware of After-Holiday Sales

Temptations are difficult to keep at bay, and one of the most enticing is to keep on shopping, even after the holidays have passed. And with so much momentum going, it can be hard to rein in your spending, especially if you’re surrounded by after-holiday sales — even after you’ve already spent so much.

Post-holiday sales prey on Americans’ shopping behavior. In fact, according to TD Bank’s survey, the biggest reason people spend over their budget is because of impulse purchases.

So stay vigilant and avoid impulse buys when you go shopping. But you don’t have to totally ditch after-holiday sales entirely. As many personal finance experts have suggested, making a shopping list and sticking to it can do wonders.

Track Where Your Money Is Spent
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Step 5: Track Where Your Money Is Spent

In order to properly track your spending during the holidays, you need to know where the money is going. “Right after the holidays [people] need to assess the damage done to their pocketbook by going through and figuring out how much they spent versus what they planned on spending,” said Greutman. “Then start by decluttering their finances. To do this they need to figure out where they spend money and where they need to cut back.”

Another useful strategy to keep a close eye on your money is to create a “Countdown Fund,” said Deacon Hayes, financial coach and founder of WellKeptWallet.com. “This is where you put a specific amount of money aside each month for the holidays. For example, if you get paid every two weeks, put $150 aside each check into a savings account or an envelope. Then after four paychecks you have $600.”

So, by the time the holidays get here, you have the cash to pay for things instead of relying on credit cards, Hayes added. When the holidays are over, you’re good — because everything is already paid for.

Better yet, load that onto a prepaid card so you can still take advantage of online shopping.

Cut Out Unnecessary Expenses
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Step 6: Cut Out Unnecessary Expenses

As you track where you spend your money, you can get a better idea which costs are necessary. Start by getting rid of things you don’t need to spend money on, said Greutman. “[Then] get back to the basics,” she added. “After the holidays, when things start to settle down [it’s] the perfect time to get their finances in order and figure out how to start 2017 off with a bang.”

Gifts are “necessary” expenses during the holidays, but the extra things you often buy while shopping are not. For instance, 49 percent of respondents in the TD Bank survey said they make unplanned purchases for themselves during holiday shopping; 52 percent said they buy themselves treats such as coffee or food; and 57 percent make impulse buys on stocking stuffers and holiday extras, pushing them over their budget in the process.

“The survey results highlight just how easy it is to overspend on the smaller items that many don’t initially factor in to their holiday gift budgets like gift wrap and boxes,” said Capolongo. “Those purchases can really add up — and when consumers use credit cards for those type of unplanned expenses they can often overspend on them when you add on interest charges.”

To eliminate these unnecessary expenses, key task is for you to create and following a detailed budget plan, breaking down presents by category.

“Think about giving only four gifts to each child for Christmas and set a budget amount,” said Greutman. “The categories could be: Something they want, something they need, something to wear and something to read. Then set a budget for everyone and shop within the budget.”

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Put Your Credit Card in Time-Out
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Step 7: Put Your Credit Card in Time-Out

Credit cards are quick and convenient, but they can easily become a liability. Using credit cards for holiday shopping can become dangerous, said Greutman, because you can lose track of how much money you’ve already spent.

Even if you are banking on harvesting credit card rewards during holiday spending, using your debit card or having a separate reloadable, prepaid card specifically for holiday shopping is a good plan, she added.

“Throughout the year, it is wise to put $10 to $50 into this account and let it sit there until Christmas,” said Greutman. “Once Christmas comes, you now have cash set aside and use for presents.”

Plan, Plan, Plan Ahead
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Step 8: Plan, Plan, Plan Ahead

Planning ahead was already mentioned, but post-holiday financial planning is just as important to help you recover from your holiday hangover. Set yourself up for success the next year, too, said Greutman.

“Think about setting up a separate savings account just for Christmas next year,” she said. Then, figure out how to make an extra $10 to $50 per month — with a side hustle or part-time gig — and put that money aside for the 2017 holiday season.

Download: Your Holiday Budget Guide