How To Pay For Christmas

In previous years, you've gone overdrawn and perhaps overspent on your credit card, too. What's worse, you've made the same mistake this year: you haven't planned for Christmas at all!

I want to help you get it right this year. It's all basic stuff, but if you've never really sat down and budgeted before it can take a little while to work out how to do it right, and many more months to perfect it. You have just a few months till Christmas though, so I hope to get you going on the right track from today.

You need:

• A recent payslip, and your financial statements and bills. (If you keep them, that is. Please do so in future.)
• A calendar or diary for the next 12 months.
• A budget calculator, such as this one.

Use your financial statements and bills, and search your brain cells to find every penny you spend, from haircuts and newspapers to car maintenance and holidays. Use budget calculator to help you with your list of expenditures, and complete the calculator with all your income and every item of expenditure.

Once you've done that, you should see how much you need to save for bigger purchases over the course of a year.

A problem for new budgeters

Now you've seen what a proper budget looks like. Hopefully you're not too shocked by the result. However, there is a complication for new budgeters.

When budgeting, the general rule is to plan for larger items over a 12 month period. If your car insurance costs £600pa, you therefore set aside £50pm and by the end of the year you can buy your car insurance with your savings.

However, what's often not mentioned when talking about budgeting is that, when you're just starting, you don't have 12 months to save for most of these things. It may be just three months till your car insurance is due. This means you need to find £200pm, if possible, in just three months. After that you can reduce it to £50pm.

This means you have to be organised, and that's why you need your calendar. Stage two in your beginner's budget is to mark all the important dates, such as when you get your car insurance and when you want to pay for your next holiday.

Then you have to work out how many paychecks are between now and each one of the expenses you've marked on your calendar. Divide up each expense by the number of paychecks between now and the date of each expense. You now know how much you need to save each month during your first year of budgeting to pay for these expenses out of your own money.

Next, you have to use those results to adjust your budget for the first year only. You probably have just two or three paychecks before you need to start paying for Christmassy things, so let's use your festive spending as an example. Let's say you work out you need to spend £400 on food, travel and gifts. Let's also say that you get paid at the end of the month, so you have just two paychecks between Christmas.

You now need to re-use the budget calculator typing in £200pm for Christmas. Previously it should have said £34pm (£400 divided by 12). When, by the end of November, you've saved up your £400, you should then re-adjust your budget to start saving at a rate of £34pm again, so you're not hit with this problem in future.

Save now, spend later!

On the plus side, during your first year you can put off saving for other things. If you want to save £500 for a holiday in late 2009, you could, for example, set your holiday budget to `nil' for a few months till you've caught up with your Christmas payment. Then next year you can set it to £100pm for five months. After that, you can reduce it to £42pm, so that you save steadily for your holiday the same time next year.

The trick is to get it so that, by the end of September 2009 (one year from now), you're saving for everything in advance.

Finally, if in a month or two you find your budget isn't working, it's because you're not accounting for all your expenses properly. The best way to get a handle on that is to keep a spending diary for at least one month. This is a log of every single purchase you make, right down to an extra packet of sweets. You'll then see where your money is dripping away.

You can get loads of tips on budgeting, reducing your debts, reducing your bills and saving money through our excellent discussion boards. Just ask a question or trawl through some of the messages for ideas.