Financial planning for the festivities

With only two pay days to go before Christmas, if you haven't already started to think about how you are going to pay for the forthcoming festivities, now couldn't be a better time to start planning otherwise you could wake up to a nasty debt hangover come January.

If you've been sensibly saving up all year in a high interest savings account such as IceSave's Easy Access, which is currently paying 6.30% gross AER, you probably don't need to worry. Unfortunately, only 9% of us save for 11 to 12 months to pay for Christmas, according to research from Britannia Building Society.

Those who get a large bonus, also don't need to fret. But for the rest of us, there's the option of paying using the last two pay packets, raiding the piggy bank or getting into debt.

Britannia says that the average amount spent last Christmas by a household with children was £840 and only £200 less for those without children - paying as much as that out of two pay packets is hard for most people.

While most companies pay their employees before 25 December, don't forget you will have to survive on this until the end of January and it's not going to cover the extra expenses as well.

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Keep to your budget

Whether you have savings or not, the first thing you must do is work out a budget. To prevent overspending and over indebtedness, you need to work out how much you can afford to spend in total. Once you have a figure in mind, you can then work how much you can afford to spend on presents; food and drinks; and entertainment. You might also be taking a holiday as well.

Write out a list of what you can afford to spend on individual presents and nights outs etc., and write down everything you actually spend as well, so you can reconcile spending against your budget. The hard bit about budgeting is sticking to it.

Got any savings?

If you are one of 47% of people without any Christmas savings, to be honest it's a bit late to start saving for this year. You could ring fence the money though and put it in a high paying interest paying account, which could be help a bit but it's not going to make you much interest. However, it's certainly not too late to start saving for Christmas 2008, says Anna Bowes, investments manager of AWD Chase De Vere.

She added that Christmas is a time for enjoying yourself but it's also a time to learn about managing your finances because you have to pay for it some day. You don't want to be still paying for this Christmas in December next year!

You could start saving in an ordinary high interest savings account, a mini cash ISA, a special Christmas savings account or with a Christmas club. Following the collapse of Christmas hamper firm Farepak in December 2006 when 150,000 families lost £40 million in savings, savers in Christmas clubs now have more security but only if the organisation is a member of the Christmas Prepayment Association.

Which is the best savings account for you? Let Moneyextra guide you to the right choice with our comparison service.

Save with an Xmas Saver

Special Christmas savings accounts can be attractive. With Skipton Building Society's Christmas saver you can save between £10 and £150 a month and currently you'd get 7.55% gross AER (variable) but you can't make any withdrawals until 25 November. At midnight on 24 November all the money is capitalised and it's automatically transferred to the society's instant access savings account and interest starts from 2.04%.

09 October 2007 © Moneyextra.com

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