Christmas, Money, Sugarplums... and More

Watching some morning cartoons with my girls over the weekend transported me back in time. And no, it wasn't just because I remembered how cute Strawberry Shortcake is. (What a smile!) It was the commercials. It was easy to ascertain a shift that has occured in the past month. There are no more commercials geared toward parents. No car insurance, cleaning products or shampoo is pitched this time of year. Just toys. 100% toys. Cool looking toys interspersed with animated sequences where the action figure 'comes to life' and performs some awesome feat. I wanted most of the ones I saw.

Each ad took me on a journey that started with me rolling my eyes at the silly object to shrugging in admission that it does some impressive moves to downright greed by the time its 30 seconds were up. I even wanted Baby Born with its motorized scooter. I mean an infant on a moped! Brilliant! We are trained to want everything- and get everything we want for Christmas.
This started long ago. Well documented in A Night Before Christmas. Every book I ever saw, those people got sugarplums and then some. They had loads of presents crammed under the tree. It has been probably a half century since the last sugarplums danced in anyone's head. With each successive generation the objects of our dreams have gotten ever more expensive and intricate. Admit it - when was the last time a sugarplum was on your Christmas list?

When I was a kid my dad was excited (or feigned to be so) when my sister and I chipped in together to buy him a pair of wool socks. A couple years ago he got a $200 laser-guided 10" chop saw. I'm sure any new wool socks would have just become practice fodder for his new toy.

Unfortunately this trend away from homemade sugarplums to $200 iPhone has created much more sinister nightmares in many a parent's head. Fear, pain, anguish at the cost. Can I afford it? Will they be crushed if that isn't sitting by the fireplace Christmas morning? What's a little debt...it's Christmas after all. She needs a Baby on a moped!

This rationalization is then followed by months of regret as we try to pay for the 'must-have' extravagances that already lay broken on the floor.

We are all different and nothing works for everyone the same way when it comes to advice on money. I'll share a few tips on what we've done over the years to ensure that the ghost of financial pain has never visited us at Christmas. If these ideas sound good and are useful-Great! If not, then I apologized for wasting your time and hopefully some of my upcoming submissions will have value for you.

The 2 Keys: Allocation and Apportionment

Based on those words, if you are waiting for an accountant joke- too bad. I'm serious now.

1. First you need to have an Allocation of funds that are safe, almost sacred- for Christmas only. Your level of discipline can determine how and where you put this money.

When I started working at KPMG out of university, I noticed everyone else ate out for lunch most of the time. I didn't have enough money to go out every day, but I still wanted to be part of the group. I got a monthly allocation of $30 from our budget which was sufficient for 1-2 meals out per week. If this money had remained in our checking account I knew it would disappear. So, I withdrew $30 cash at the beginning of each month and paperclipped it inside my copy of the Internal Revenue Code. (The few people that found the money were amused, as only tax accountants could be, in noting that I put the money at Section 170- Charitable Contributions). I always had my lunch money. I made my Allocation.

We make more money now and don't spend every penny we earn. So, I no longer withdraw my lunch money as cash each month. The Allocation is safe in our checking account.

My point? You need to do the same thing with your Christmas Fund. In January, sit as a couple or a family and review what you spent on Christmas. Be Honest! Count all those stocking stuffers too, and all those little things bought in October to 'get a head start'. Then set a realistic Allocation for the upcoming Christmas. (I know it will be 12 months away, but January is the right time to do it.) Maybe you were able to stave off your 12 year old this year and didn't get her that iPhone, but you know you'll likely succumb to her 13-year-old fury. Plan accordingly.

For several years we budgeted $500 a year only to discover that we consistently spent nearly double that amount (including gifts, stocking stuffers, Christmas dinner, and Charities like those cute little Cub Scouts that sold us popcorn every year). For 2009 we wised up and budgeted $1,000. Whatever the amount from $100 to $10,000, set it aside and forget about it until Christmas. If that means withdrawing $80 each month as cash and putting it under your mattress- or in a boring book at work- DO IT! If it means setting up a second savings account and transferring money into it each month- DO IT! Try setting up a CD that expires in mid-November. Hopefully the penalty for early termination will dissuade you from tapping into the money prematurely.

If you don't need to keep the money in a separate place, you still need to remember that money is 'spoken for'. You need to constantly remind yourself that $1,000 of your checking account balance cannot be spent. It is for Christmas.

I know the concept of Allocation doesn't solve the question- Where does the money come from? Two ideas here.

1) take it from your annual bonus. Set it aside and forget about it.

2) set aside a bit each month.

If you find you spend everything in your checking account each month, take it out as cash and hide it somewhere- like I used to do with my lunch money. If you are on the edge and Need to spend every dollar you earn, wait until your next raise. Someone making $40K getting a 5% raise, will have about $1,000 more spendable money. Instead of spending your raise- set it aside as your Christmas fund. The beauty of this is that you only need to sacrifice once. When you get your raise next year, you already have Christmas saving built into your lifestyle- so you can spend your new raise however you want.

If you aren't bored and have given up by now, you get to read about key #2: Apportionment.

That is a fancy word meaning- split your $$ amongst those you want to buy presents. People tend to get queasy here, but buckle down and we'll make it together. How can I possibly put a dollar limit on my love for granny?!?

Easy- start with your Allocation Total on the top of a piece of paper and list everyone you normally buy presents for. Don't forget work colleagues, school teachers...the paper boy.

Then put those names in order of how much you love them...

Just Kidding! Maybe an order of how 'close' you are to them is a more PC way to put it. I like my paper boy, but I like my boss more, my granny more, my children more and my wife most of all. You have done the hard part and can stop squirming. The rest is just math. In Step #1 we talked about Allocation, so now we just need to divide it according to the importance of the people you've ranked on your list. While this ranking may be hard, it ensures you don't spend $20 on your paper boy and then feel guilted into spending $2,000 on each of your kids because you intrinsically know how much more important your kids are to you.

Once you've Allocated your total pot o' Christmas money, you can start shopping! Oh, and keep track of what you spend. Those $5 DVDs for stockings are cheap, but not if you buy 5 for each child, parent, paper boy... you get the idea.

Well my train ride is over- so my article is too.

Remember Allocation and Apportionment:

Allocate a pot of money to keep safe and separate for Christmas.

Apportion that money to everyone you buy gifts for.

Don't Cheat.

Do this and you will never have visions of credit card debt swirling in your dreams. Maybe even those creepy sugarplums will find their way back into your subconscious. Or an iPhone....yeah, lets hope for iPhones in our dreams - much less creepy.