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Cashed-up for Christmas? Plan now or pay the price

With the festive season approaching faster than you can say Santa Claus, it's never too late to start saving for the financial hit that traditionally happens. Planning ahead gives you control and the peace of mind that goes with it. It also prevents the piling up of bills that results in that awful holiday season debt hangover. How do you avoid it? Consider this Christmas savings action plan.

Coming up with a Christmas budget is what everyone should do before they start filling up their Christmas shopping list. Drawing up a budget involves estimating how much you are going to spend in total. The steps that you can take in helping you come up with a budget may include:

1. Determining how much you can spend relative to your financial position. So, what this is telling you is that you should only spend what you can afford by considering your current income, expenditure and financial obligations, such as your credit card debts and mortgage repayments.
2. Add together how much you are going to spend on each person and other holiday expenditures to come up with a total figure.
3. Compare this total estimated figure against the ideal budget amount you originally allocated. More often than not, the figures will be nowhere near each other and you will have to make adjustments in order to stay within your budget.

Having a budget is an effective money management tool because it allows you to compare how much your real spend is with how much you actually planned to spend. You can also monitor what Christmas costs you over any number of years.

Once you have come up with a Christmas budget, the next step involves determining where the money will come from. This will depend on your current financial situation and also your expected financial situation in the coming months as Christmas approaches. Outlined below are some of the different financial situations you may well find yourself in right now.

If you have received a lump sum of money, such as a tax return, you may want to consider setting a portion of this money aside for your Christmas shopping. The best way to avoid the temptation of spending this money is to lock the money away in a term deposit. A term deposit benefits you two-fold, by locking in a good interest rate and forcing you not to withdraw your money without losing the interest earned.

Here is a table of the top ten 90 day Term Deposit rates in Australia.

Top Ten 90 Day Term Deposits

If you are not fortunate enough to have a lump sum of money sitting in your bank, you can start putting aside a small portion of your income every week. The introduction of online savings account in recent years can be a good alternative for people wanting to gradually save money while having the benefit of earning much higher interest rates than the traditional Christmas savings account.

You may either transfer your money periodically from your transaction account into these high interest online savings accounts or you may even decide to open an online savings account as a standalone account. It not only pays you a high interest rate but it also facilitates your propensity to save.

If you know your weakness is to spend as quickly as you save, maybe you need to decrease temptation even further, Consider putting your money into an account which awards you very high interest rate but only if you make regular deposits and do not make any withdrawals during month. Such an account is BankWest's Regular Saver that pays you a whopping 8% interest rate provided that you meet the conditions.

If you are paying off a mortgage or if you have a lingering credit card debt, there is no doubt that paying off these debts should take priority. Paying off debts early will save you heaps on the high interest payable, especially on credit cards which can slug you as much as 18%. The amount of money you can afford to spend at Christmas depends entirely on what is left after your debts have been serviced. If you overspend during the festive season, you have only two options. You can consolidate your debts into a personal loan that will have to be paid off with set repayments in a set timeframe or, if appropriate, you can redraw from your mortgage to cover the expenses.

If you do spend way more than you can afford, make a plan that this Christmas will be positively, absolutely, definitely the last Christmas you will ever do this.

Remember, there is nothing wrong with downsizing Christmas to one that you can enjoy minus the financial stress.

RateCity is the best website to shop around on for all savings accounts, as well as most other financial products. At RateCity, you can use expert comparative data from CANSTAR CANNEX, Australia's leading financial research and ratings firm. CANSTAR CANNEX has analysed and evaluated hundreds of financial products to award five stars to only the very best. The CANSTAR CANNEX star ratings go much further than just looking at interest rates. They also take into account important features so you can be confident you are getting the best product.

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