This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice please consult us here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Did you know that UK households spend an average of £2,500 in a month, but this rises by £740 in December (a 29% increase)? The main areas where we spend more include clothing, textiles and footwear, furniture, specialist foods and electronic devices (e.g. computers and phones). In January, however, the result of Christmas spending is often a financial “hangover”, with many households struggling with debt as they wait for their January paycheque (an especially long month in the year). In fact, 17% of UK households turn to the credit card at Christmas, gathering an average debt of £439.
With the cost of living rising in 2022, especially due to higher energy and food prices, it is even more important for households to have a robust money management plan for Christmas. Below, our team in Burnley offers some financial planning tips for December 2022. We hope this content is useful to you and please get in touch if you’d like to discuss your own financial plan with us over a free, no-commitment consultation.
Check last year’s spending – then add a premium
Can you list your December spending in 2021? Try to itemise everything – gifts, food, travel, decorations, heating and more – and come up with a total. Even if you do this thoroughly, there is a strong chance you have underestimated. So, add a premium to your estimation (e.g. 20%). Moreover, assume that these costs will rise in December 2022 without further action due to the rising cost of living we all face compared to 12 months ago. The end result may be a large overestimate of what you do end up spending. However, that could mean more savings to help strengthen your finances in January. Underestimating your finances, however, could mean needing to turn to savings (or credit) to cover unexpected costs.
Explore ideas to cut costs in gifts
Given that the bulk of our £740 average extra spending comprises “discretionary items” (e.g. clothing), exploring creative ways to cut costs on Christmas gifts can be an effective way to keep December spending under control. Firstly, take a look at your gift list. Does every person on this list need to be there? For instance, perhaps you could give a single gift to a single unit in your family (e.g. your sister, her husband and children) which everyone can enjoy together rather than giving an individual gift to each person?
Another idea is to agree on a spending limit with other people for gifts (e.g. £20). It can also be thoughtful (and cheaper!) to gift experiences to loved ones rather than just physical items, such as free “vouchers” for babysitting or cooking them a favourite meal. You never know, these people might be grateful to you for raising ideas for cutting gift costs if they are facing strain on their own finances this Christmas.
Re-use and recycle
Did you know that British people throw away 2 million turkeys each year and 5 million Christmas puddings? Yet there is little need for such waste. Plenty of recipes can be found online to reuse Christmas leftovers, and many can be frozen and used weeks later if not consumed imminently. If you do not already own a Christmas “store” of lights, decorations and other festive items, 2022 could be a good time to start building one up – helping to keep your costs down in the future. wrapping paper, envelopes, cardboard boxes and gift bags can all be reused and are easy to store. Be careful with items like disposable dinnerware and plan carefully about what to do with your Christmas tree after it dies, such as using it for firewood or compost.
Stay committed to your long-term plan
Taking time to review your Christmas budget in light of rising living costs is a good idea, but it is important not to sacrifice your long-term financial goals in the process. Some studies suggest that as many as 50% of British people have stopped saving or putting into a pension in recent months (primarily to address short-term money issues). Some households will face little choice but to do this, but others may be doing so instead of re-examining their budget first. Reducing pension contributions, in particular, risks having a negative impact on your long-term finances and undermining your future retirement lifestyle.
Another study also suggests that the vast majority of British people (80%) have less than £500 in their current and/or savings account. Part of saving a robust financial plan involves having a strong “cash buffer” in case of emergencies, to help prevent households from turning to debt in the event of a job loss or costly home repair. A good target to aim for is 3-6 months’ worth of living costs in easy-access savings. Take care not to neglect this part of your financial protection amidst all of the extra spending that often comes with the Christmas period.
Invitation
If you are interested in starting a conversation about your own financial plan or investments, then we’d love to hear from you. Please contact us to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Reach us via:
T: 01282 772938
E: info@elmfieldfp.co.uk
