How to manage holiday spending

In this episode of the BDO Financial Wellness Podcast, host Tera Beljo speaks to two BDO Licensed Insolvency Trustees, Nancy Snedden and Ron Gagnon, about how to manage your holiday spending, stick to your budget and avoid debt during this unusual holiday season. To learn more about their conversation, read the full transcript below.

Financial Wellness Podcast Transcript 

Tera: 

Hello, and welcome to the BDO Financial Wellness Podcast. I’m your host, Tera Beljo, and in this episode, we’re going to talk about holiday spending. Yes, the holiday season is here and even though this year’s celebrations might look a little bit different for many of us, that doesn’t mean that we’ll necessarily be spending less. According to a new survey from Equifax Canada, the majority of Canadians say that their holiday spending will be around the same as last year. Well, a third plan to spend less, and that’s not a total surprise to us as our own Affordability Index found that majority of Canadians are unaffected or even better off since the pandemic began. Almost half of the Equifax respondents admit that COVID-19 will affect their holiday plans. 

Now, the majority do save they will not be visiting extended family this season due to travel restrictions or choices, which means they will be spending less on travel expenses like hotels and airfare, gas. And while online shopping seems to increase in popularity every year, even more people will be doing their holiday shopping online, especially this year. But despite the adjustments, many of us will have to make over the holidays. The Equifax survey reveals that Canadians are fairly optimistic. Canadians will still be buying gifts and they’ll still be connecting with family any way they can and of course celebrating. Recently, I had the opportunity to sit down with Nancy Snedden and Ron Gagnon, both Licensed Insolvency Trustees with BDO Debt Solutions. 

Nancy is out in Atlantic Canada and she heads up the team there while Ron leads the team in Québec. We had a great conversation about how to manage your finances during this very different holiday season, and there’s no doubt that a great number of households across the country will feel financially stressed over the holidays. Nancy and Ron have some great insight and practical advice on how to enjoy the celebrations while still keeping your spending and debt in check.  

This is going to be a two-part series. So in part one of this two-part series, we covered a lot of ground. We talked about how to focus on conscious spending and to create an honest holiday budget, which I didn’t know that we should be including some things in there. So there’s some great tips there, and how to manage your credit card purchases and more. We hope you’ll find it useful and you’ll stay tuned for part two.  

Thank you so much Ron and Nancy for sitting down with me today to talk about holiday spending because it is the season and this year it’s going to be a little bit different because of the pandemic. So, Nancy, I want to start with you. Why do you think it’s so important at this time of year during the holiday season for people to practice conscious spending or mindful spending? 

Practice conscious spending 

Nancy Snedden: 

Well, I would say, Tera, it’s always important to make sure that you’re practicing conscious spending, make sure that you’re living within your means, you’re reviewing your budget regularly. But I think at the holidays it’s even more important because it’s really easy for people to get wrapped up in gift giving, and if they’re not setting a budget on what they have available to spend, you’re out shopping, you pick up this thing and that thing, and I know I’m guilty of it, I’ve talked to my family members that are guilty of it, you forget that you’ve bought stuff if you start early shopping and then you end up buying more than you intended. So it’s really, really important. 

But I think in 2020, because we’re faced with this pandemic and we already have so many people who are on reduced income because of lower working hours or in some cases having been laid off, it’s even more important this year to make sure that you’re setting that holiday budget and really paying attention to what you’re spending and that you’re sticking to that budget. 

Spend your holiday travel dollars on paying down your credit cards 

Tera: 

And Ron, so people are traveling less, and because we’re not allowed to gather for the holidays, most likely with our families, and travel in general is supposed to be right now only for essential travel, and unfortunately, seeing your family at Christmas is not essential travel, so if people are saving money because they are not going on their annual trip home for Christmas, what could they do with those funds? 

Ron Gagnon: 

Well, there’s a lot they could do. One of the things they could do if it’s not too late is to start putting money aside to pay their Christmas gifts and whatever spending they have without actually having to use their credit cards. So maybe when you take some time off during the holidays, you’ve already had your credit cards take some time off, which could be a good thing if you’re capable of doing so. So that would be one thought. But obviously, a little more seriously, but not that seriously, I think an emergency fund is something that we’ve been telling people to do forever. But I think if you have an opportunity now because your spending is lower, because you’re not traveling, for all the reasons that you just said, the emergency fund is amazing because it is what it is. 

If something comes up, and in all likelihood something will come up, well, you won’t have to resort to credit, you’ll be able to use that fund, and therefore whatever you’re using your credit for is not going to cost you two or three times the amount that you actually borrowed. So that would be one thing. But if you are already in control, then you’re a very good student, you will look at paying off your credit card debt because usually that’s where the highest interest is. Therefore, if you can pay off some of that credit card debt, that would be great. If you want me to go down on the list, I’d say, if you have a mortgage obviously and there’s too much money hanging around, well, pay up some mortgage debt, try to bring it down. 

You’ll be happier later when you know that your mortgage is to be paid off a little quicker. That would be it. Maybe a bit of short-term and long-term savings for your retirement if you can look at it, if that’s possible, but it’s sort of like in the order that I said that I think it should be looked at. 

Include every seasonal expense in your holiday budget  

Tera: 

So, as we always talk about around the holiday season, a holiday budget is very important, but I think now more than ever, it is more important. So for those who haven’t been affected financially, how do they prepare for the possibility of tougher times ahead while utilizing a holiday budget? Nancy? 

Nancy Snedden: 

Well, I think, Tera, with your holiday budget, sometimes people think, “Okay, well, my holiday budget, this is how much I’m going to budget for the gift-giving that I have to do.” But I think what people need to consider is, what is your holiday spending all encompassing? So not only the gifts, but even the gift wrap, the extra groceries that you’re going to have during the holiday season. If you normally buy Christmas pajamas for your family, or you have some tradition in that, make sure that you’re really thinking about everything that’s going to be an expense for you during the holiday season that is over and above what your regular budget is. And I think from there, you need to really go back to your budget as you’re spending that money and make sure that you’re sticking within it. 

So, for example, if you’ve set a gift limit, don’t only set a gift limit that you’re going to spend $400 on gifts this year, really make a list of the people you have to buy for and set a budget for each individual gift. That way, as you’re buying things, you can go back and tick the box and say, “Okay, yes, I was within that limit. Maybe I spent a little less, that’s great, now I have extra money if in case something else comes up or that I can put into my savings.” If I’ve spent a little more, then I need to review my budget to see where I can make that up. So it’s really important that you’re thinking of everything and that you’re double checking everything as you’re spending those funds. 

Ron Gagnon: 

And if I may add, I mean, I think that that’s the… to Nancy’s point, there’s everything that’s included in that holiday budget. I mean, sometimes, it’s the time of year where you want to sort of celebrate even if you’re not with your whole family, but say that that bottle of wine… well, I want this really nice bottle of wine, well, that’s got to be in the budget also. So I think we need to consider all of the things, and if you can save some, great, because who knows what’s around the corner. 

Track all of your holiday credit card spending and shop local if you can 

Tera: 

It’s funny you say that because I’m not a huge wine drinker, but there is a special wine that I always buy at Christmas and I never even think to throw it in my budget, and chocolate. My chocolate intake goes up during the holiday season. So maybe I should start putting that in my budget too. You brought up credit cards, Ron, so let’s go back to credit cards. With the expected increase in online shopping and curbside pickup this year, credit cards will likely be the payment method of choice over the holidays. So considering that debt credit card… Sorry, considering that credit cards are one of the highest interest forms of credit, what spending behaviors should people avoid this holiday season, especially those people who are worried about adding to their debt levels? Ron? 

Ron Gagnon: 

Well, depending on your financial situation, I think that I gave the example of trying to start saving for your holiday budget while you can prepay those credit cards or put that money directly on the credit card if you want to, therefore you’re not going to be paying interest on the new expenses that you’re making. Obviously you’re paying interest on whatever prior debt you had on the card, but that’s one way to avoid incurring additional debt. And like I said, before you end up…that the gift you bought, you’re going to pay it three times before you actually pay it off. So, I mean, it’s so easy to overspend so that’s the… as Nancy said before, you really got to track your purchases. So you’ve got to keep that tracking even though you’re buying it on your credit so you don’t feel it right away. 

But it’s there, so make sure that you’re taking it into account. And I mean, why not buy local and try to avoid the…Maybe I should not say Amazon, but let’s just say that Amazon is not local. 

Tera: 

No. 

Ron Gagnon: 

So maybe try to make some local spends, go to the little shops nearby and encourage the local economy, and avoid using your credit card if you can. 

Avoid using too much credit – it could negatively affect your credit score 

Nancy Snedden: 

Yeah, and I would add to that too, Ron. If you know that you’re going to be using your credit and you’re not going to be able to pay it off at the end of the month so you are going to incur that interest, as part of your budget setting, you could even build in, “Well, I’m going to end up actually paying more than I’m budgeting because I’m going to have these interest charges.” But make sure that if you’re planning to use credit and you know you’re not going to be able to pay it off at the end of the month or as you’re using it, make sure you’re setting a limit that you’re going to be able to pay off within at least two to three months so that you’re not building up a huge amount of interest on that debt. 

Tera: 

And how does that affect your credit score if you’re having a high credit utilization? 

Ron Gagnon: 

Well, if you’re using too much of your credit, you’re affecting your credit score negatively, because they take into account how much of available credit you have versus how much you’re using. So even if you’re paying it off every month, which unfortunately isn’t everyone’s case, you’re still affecting your credit negatively. 

Beware of acquiring new credit and avoid buy-now-pay-later sales 

Tera: 

Another thing that I’ve noticed that happens particularly around the holiday season is you go into Walmart or Canadian Tire, any store, and they’re always offering you a fantastic savings deal to sign up for their credit card. Any advice for how to handle that? 

Nancy Snedden: 

Well, I think it’s important for people to look at, what credit do they currently have available and are they using that responsibly? And is this additional credit going to be too much of a temptation that… because for some people they see their credit card similar to their bank card. So if there’s available credit there and there’s something that they want, then because the credit is there to get it, they’re going to go ahead and purchase it. You need to be really disciplined before you’re signing up for new credit. 

It’s always good to have some credit available because you may have that emergency that you don’t have the dollars for or you’re not going to have a credit score at all unless you have some source of credit, but just make sure you’re being responsible about it and make sure it’s something that you’ll be able to utilize in a positive way not something that’s going to negatively impact you, because another consideration with your credit score is that if you have too much credit or too much highly leveraged credit, that’s actually going to have a negative impact versus a positive impact. 

Ron Gagnon: 

And to add, Nancy, I agree with you that to have some form of credit card available is good because it does help with your credit score and it is useful, but the store credit card is not one of them because the interest rates are really high on those cards as we all know and I think they should be avoided at all costs. 

Tera: 

And they’re also bringing you in with that, “no money down”, “no payments until next year.” So, what happens? Because who knows what’s going to happen in 2021 with the pandemic? What happens when you miss a payment? 

Ron Gagnon: 

Your credit is impacted automatically. Missing payments is something that’s going to hurt you, and in some instances, what it does is it brings the whole interest that is paid. Even though you have no money down, if you miss a payment, they can factor in all of the interest for the whole loan. So it’s a very dangerous thing to use if you’re not totally certain that you’re going to be able to make every single payment or not miss a single one. 

Avoid payday loans at all cost  

Tera: 

So, now is also a time where people may look to payday loans to make it through Christmas. Do you have any advice around that, Nancy? 

Nancy Snedden: 

I would say my advice around payday loans, Tera, is always avoid them at all costs. These payday loans, once you get into a cycle of them, it’s really hard to get out. And I see people who get trapped in a cycle of not being able to pay back the money because the interest on them can be as high as 60 per cent. 

Tera: 

Wow! 

Nancy Snedden: 

And a lot of people don’t realize that. And although they’re going to take the money out of your paycheque when you get paid, that’s then going to leave you that much shorter for that payday. So if you’re someone who lives paycheque to paycheque or is very close to living paycheque to paycheque, having to pay back a payday loan, then get you in the cycle that before next payday, you’re likely going to need another payday loan, and so the cycle continues. So I would say avoid that at all, all costs. 

Ron Gagnon: 

And I agree with Nancy. It’s such a bad idea that some provinces… I know for Quebec in particular, it’s actually illegal to have a payday loan. You cannot get into that because it’s not something that you should resort to ever. 

Tera: 

I’d like to thank my guests, BDO Licensed Insolvency Trustee Nancy Snedden and Ron Gagnon for taking the time to talk to us. Stay tuned for part two of our holiday spending conversation with Nancy and Ron when we’ll talk about how to embrace frugal holiday spending and avoid holiday debt. For more Financial Wellness podcasts and videos along with debt management resources, tools, and expert advice, visit our website, debtsolutions.bdo.ca. And remember, we are here to help you turn the page on debt.

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