The bank account and credit card statements are in by now, and reality is sinking in. This past holiday season was supposed to be different. The year before last, you emptied your bank account and ran up a couple of credit cards to pay for the holidays.

It wasn’t supposed to be that way this time around, but it happened again. You promised yourself you’d have better control, but you didn’t do any better than the year before. Maybe you even did a little bit worse.

Are you noticing a pattern? And are you ready to commit to making sure the next holiday season really is different?

If so, you’ve got two jobs ahead of you:

  1. Rebuild your depleted finances from this past holiday season, and
  2. Put a strategy in place to make sure it doesn’t happen again in the next holiday season.

How to rebuild your finances from the holidays

If much or most of your holiday spending came out of your emergency fund, replenishing it needs to be the first order of business.

Start by cutting back on any non-essential spending. Since you had your spending spree during the holiday season, it’s now time to go on a financial diet.

This is also an outstanding time to start selling a few things you don’t need. With the holidays come gifts, and that creates several scenarios—and opportunities:

  • If you received any gifts you don’t really like or need, return them to the merchant for a cash refund.
  • Sell gift cards you received. You can do that through websites, like GiftCard GrannyCardKangaroo, and CardCash.
  • With the gifts you received, you may now have duplicate items. Sell the older items on eBay or Craigslist.

Each of the above is an excellent way to raise the funds you need to refill your emergency fund. Alternatively, the extra funds can also be used to pay down any excess credit card balances.

How to avoid making the same mistakes next year

1. Move your savings into a high-yield bank account

If you normally keep your money at a local bank, you’re probably being paid an interest rate that’s some small fraction of one percent. You can do better than that, and one way to do it is with a high-yield savings account.

Online banks are currently paying between one and two percent, or higher in high-yield savings accounts, money markets, and certificates of deposit. By taking advantage of these accounts, you can earn a little bit of extra money to help pay for the next round of holidays.

For example, let’s say you normally keep $10,000 in an emergency fund. If you can earn 2% in a high-yield savings account over the next ten months, that will give you an extra $167 in time for the holidays. That may not pay all your holiday expenses, but it should help.

Here are today’s best online savings rates.

2. Use a rewards credit card and earn cash back

Use a credit card for spending after you just got done paying it off from the last holiday season?

Okay, it does sound a bit like a contradiction, but it could be one of the better strategies to prepare for the next holiday season.

Use a generous rewards credit card to build up cash back rewards between now and the holidays. If your credit score is not so great, I recommend Credit One Bank® Unsecured Visa® with Cash Back Rewards which has no annual fee and offers 1% cash rewards on eligible purchases.

If your credit score is good or excellent, my favorites is Discover it® Cash Back with 5% cash back on cool select categories each quarter (including grocery stores, Walgreens, CVS, gas stations, Uber, restaruarants, Paypal, Amazon.com, Walmart.com, and Target.com and even more..) you activate with a $1500 max and 1% on all other purchases. And no annual fee too.

I’ll break it down for you:

  • Let’s say you spend $1,000 per quarter on those select categories. At 5% cash back, you’ll earn $50 in each of the next three quarters, which will total $150.
  • If you also spend $2,000 per quarter on all other expenses, you’ll earn $20 in each of the next three quarters, for a total of $60.

That will give you a total of $210 between now and the holiday season. Since you can take that as actual cash back, or a statement credit, the rewards money will be available for holiday spending.

3. Get a new credit card with a generous sign-up bonus

Another example is getting a new credit card that offers a generous upfront bonus. For example, the Capital One® Venture® Rewards Credit Card offers a one-time $500 travel value bonus after you spend at least $3,000 in purchases within three months of opening your account.

The cash can be redeemed at any time. Do you think that will help when the next holiday season rolls around?

But that’s not all. The card also offers unlimited 2X miles per dollar on every purchase.

Here’s how I see it: if you’re going to spend the money anyway, so you may as well do it using a rewards credit card. To get the most out of a rewards card strategy, make sure you pay off your balance in full each and every month. That will eliminate the interest expense, giving you the full benefit of the rewards the card offers.

4. Setup a dedicated bank account for holiday spending

If you tapped your emergency fund to cover holiday expenses last year, that’s a practice you probably want to avoid. Emergency funds should be reserved for their intended purpose, which is emergencies. Holiday spending shouldn’t fall under that category.

Instead, create a dedicated savings account to build up funds to pay for the holiday season. You can use your own local bank for this purpose.

As an alternative, you can use a high yield online bank as I’ve already mentioned.

There are a couple of ways you can fund your holiday account:

  • Set up a payroll deduction going right into the account. If you get paid every two weeks, and there are 20 pay periods between now and Thanksgiving, you can accumulate $500 by direct depositing $25 per paycheck. If there are 10 pay periods only, you can save up $250 with a $25 direct deposit for each of your paychecks. You get the picture.
  • Bank windfalls. For example, if you get an income tax refund of $1,500, put $500 of it into your dedicated holiday account. You can do the same thing with bonus or overtime money earned at work, or from the proceeds of anything you might sell on eBay, Craigslist, or at a garage sale.

5. Keep a lid on your holiday expenses

If you want to get even more bang for your holiday buck, work throughout the year to limit your expenses.

Set a holiday budget

Holiday expenses have a way of opening the monetary floodgates. It’s not just buying gifts, but also decorations, hosting and attending parties, restaurant meals, and an assortment of special activities and outings. Spending can get out of control quickly.

But you can begin working now to create a workable budget.

Buy gifts throughout the year

You don’t have to hold your holiday spending until Black Friday. Instead, if you see a gift idea that works for a certain person, buy it now. Better yet, buy when it’s on sale. By spreading out gift purchases, you’ll avoid the year-end crush.

Make your own gifts

If you have a talent for making or creating things, this can be a way to save serious money on gifts.

There’s a side benefit to this as well. Often times a homemade gift expresses a greater level of thought and appreciation than a store-bought gift.

Summary

You can certainly use any one of these strategies to be prepared for the upcoming holiday season. But if you use all of them, you’ll find yourself accumulating thousands of dollars, not hundreds.

If this past holiday season left you broke, you’ll be able to look forward to an entirely different outcome. Not only will you not be broke after next season, but you may find yourself with extra money on your hands.

Read more

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