After months of rising prices, this fast-approaching festive season may be a daunting prospect for many when we consider what is usually spent on purchasing gifts, clothing, and decorations, as well as nights out or hosting Christmas dinner. For example, the Bank of England estimates that we spend on average almost £740 more in December, which is 29% more than a typical month.
Many of us feel the pressure to buy more than what’s needed or than what we can afford when shopping for Christmas presents and food. Research has found that the average person gets into £439 of debt over Christmas and it takes them 4 months to get their finances back into shape after the festive season. To help employees manage their money over this expensive time of year, WEALTH at work, a leading financial wellbeing and retirement specialist, has outlined some top money management tips for the festive season.
1. Set a budget
Although sometimes seen as a daunting task, creating a budget is the first step towards gaining control of your finances. When budgeting is put into practice it can help someone understand how much they are spending, ensure essential payments are covered and allows them to recognise where they can make savings. Getting into the habit of budgeting will allow you to see where your money is going each month, so that as the festive season approaches you have an idea of how much you are able to spend.
2. Agree a price limit with family and friends
It is easy for people to get carried away at Christmas and spend more than they can afford. Many families and friends agree on limits on the amount to be spent on each other in advance, with some agreeing to only buy gifts for the children, making gifts, or choosing to have a ‘day out’ as a family as an alternative.
3. Utilise online shopping hacks
There are often great sales on at this time of year. However, when looking for gifts online, sometimes an item can appear to be discounted, but in reality, its price was inflated before going on sale. There are several online tools which can help people know if the saving they are being offered, really is a saving! Idealo finds the best price online for a particular product, it also provides the option to set price alerts and view historical prices. CamelCamelCamel can track the price of Amazon products, and allows users to set a price alert when a product drops to a certain price. Browser extensions like Honey search for discount codes when in the ‘checkout’ phase of buying something. Before making a purchase, it’s always a good idea to use all the tools available to get the best price.
4. Consider other ways to reduce costs
When planning food for the festivities pre-made options bought from the supermarket can often be expensive, and it can sometimes be a cheaper alternative to cook a recipe using fresh ingredients. Someone could even try making homemade gifts such as photo collages, cookies or candles which can be cheaper and more personal than shop bought gifts. When it comes to going out, leaving the credit card at home and taking a set amount of cash can ensure there are no temptations to overspend!
5. Maximise workplace benefits
Employees should be encouraged to make the most of their workplace benefits to help save on their festive purchases. For example, many workplaces offer employee discount schemes on grocery shopping and eating out. Some even offer discounts on retailers, allowing for saving on Christmas presents including electronics such as laptops or mobile phone and children’s toys. 20% or even 10% off a festive shopping bill can make a big difference!
6. Automate your saving
Automation is an easy way to help people save. Some banks provide the option to round up transactions to the nearest pound, and ‘save the change’. For example, if purchasing something for £4.20, the bank rounds it up to £5, and 80p goes into savings. Two transactions like this per day could help someone save £584 over a year*!
Payroll-deducted schemes can also be a great way to build consistent savings as the automated nature of this process makes it easy for employees to save effortlessly and consistently.
7. Understand borrowing methods
Many people use credit cards to pay for things during the festive season, and it is important for individuals to be aware of the different types of cards available for different needs. Some offer 0% finance on all new purchases and others cashback on purchases. Some money purchase cards allow the cardholder to pay off other debts, such as an overdraft, when they take out the card, and if they have an existing card with a high interest rate, it might be a good idea to transfer this balance to a credit card with a lower interest rate. When making a purchase using a credit card, there is the added benefit of ‘section 75’ protection for purchases over £100 and under £30,000, which means if something goes wrong with a purchase, the credit card company is there to help.
However, debt is always something which needs to be carefully planned for and understood before it is undertaken. Individuals may not realise that credit cards and overdrafts may have rates as high as 40%, with payday loans having rates of 1,500% and more! Also, that it is usually best to pay off debt as quickly as possible. For example, a debt of £3,000 with a rate of 18% APR, could take 10 years and 10 months to pay off if paying £50 a month, with a total interest paid of £3,495. If that monthly payment was increased to £100 a month, the debt would be paid off in two years and seven months, and the interest paid would be only £908.
For anyone who is struggling with debt, many employers offer an Employee Assistance Programme (EAP) that includes debt management support. This support often ranges from budgeting advice to establishing the root cause of an employee’s debt issues. These types of services can be very helpful as they provide, impartial third-party advice that is completely confidential.
8. Splitting the cost over two pay packets
For those who have a credit card (and depending on when they get paid), it could be possible to spread the cost of the festivities over two pay packets. For example, credit card statements are usually for a month’s spending, but payment isn’t due until a few weeks later. If the statement is from 11 November to 10 December, anything spent before 10 December could be paid with December pay. But anything spent between 11 December and 10 January, could be paid for with January’s pay. All credit cards have different statements and payment dates, so it is important that this is checked with the provider when planning to split costs.
9. Debt traps to be wary of
It is important for people to make sure all debt repayments are made on time. If the minimum payment is not made on a 0% credit card, the 0% offer could be withdrawn for breaching the terms and conditions of the offer, and interest could be charged on the whole of the balance. Those who have missed a payment or paid late should speak with their credit card provider as they may be able to reinstate an offer or look for ways to help.
Also, ‘buy now pay later’ deals which allow customers to spread the cost of items without paying interest if repaid on time, can be tempting. However, paying late can mean much higher charges. Terms, interest rates, charges and timescales can vary with buy now pay later providers, and they are not currently regulated in the UK, so it is important for employees to check the small print.
10. Saving for 2023
Of course, the best way to pay for the festive season is to save for it in advance. Whilst this might be even more difficult right now, with the cost-of-living crisis, just small changes can make a big difference to savings.
For example, cancelling any unused memberships. One in ten (12%) of people who have memberships, don’t use the gym. With a typical gym costing £40+ per month, that is a significant saving of £480 a year. Bringing lunches to work just twice a week could save £10 a week, which is nearly £500 a year. Or, having three coffee-free days could save £10.50 a week, which is over £500 a year.
When shopping for groceries ‘downshifting’ from premium or branded products to own brand or value products can make room for significant savings. By using the downshift mentality next time, it is possible to save around a third on weekly food spending! So for a person who normally spends £30 a week on food, this could be cut down to roughly £20. That’s a saving of £520 a year.
It is also possible that those with a credit card are paying higher interest rates than necessary. For example, someone with a credit card with a balance of £2,000 at 25% interest will be paying £500 a year. But by shopping around, they may be able to move to a lower interest rate, or ideally to a card which offers 0% on balance transfers.
Once employees realise this, they would then benefit from understanding the how the various workplace saving vehicles available, such as workplace ISAs and Share plans, can help them to achieve their savings goals.
Jonathan Watts-Lay, Director, WEALTH at work, comments; “Whilst the festive season can be an exciting time for many, it can also be a stressful time for those who are worried about their finances. Proactive employers are actively working to remove the stigma around money worries and encourage their employees to not suffer in silence and access the support available. Key to this is offering financial education and guidance to help employees understand their finances including ways to manage a budget, make savings and manage debt.”
He adds; “Employees who are struggling should be aware that they can contact free services such as MoneyHelper (www.moneyhelper.org.uk), Citizens Advice (www.citizensadvice.org.uk) or National Debt Line (www.nationaldebtline.org).”