How to spend smarter for the holidays

While Canadians are flocking to the malls as holiday celebrations loom, many shoppers are also hoping to scale back their spending this year.

The average Canadian is expecting to dish out $1,182 – a six per cent drop from last year –  on the holidays in 2012, including gifts, decorations, entertaining and travel, according to the latest RBC Canadian Consumer Outlook.

This figure is down six per cent from the $1,251 Canadians had anticipated spending in 2011.

"A lot of people, they're hurting," says personal finance expert Preet Banerjee.

"There's that growing sense that consumerism is getting the better of a lot of people, and they simply can't afford it."

So, how are you going to survive the holiday shopping frenzy?

Here are five tips on how to spend your hard-earned dollar smarter.

1. Plan ahead.

To avoid feeling the dent in your wallet during the holidays, start planning for the extra expense as early as possible, says Pat White, executive director of Credit Counselling Canada.

'The first step is to look at your finances. 'How much can I realistically spend?' —Pat White, executive director of Credit Counselling Canada

"The first step is to look at your finances. 'How much can I realistically spend?'" she says.

Estimate the amount you expect to spend on the holiday season, and divide that amount among the remaining paychecks until the festivities arrive, she said.

"Then, you are way ahead of things next year," White said.

Or, you could start your planning even earlier – on Dec. 26, says Banerjee.

The post-holiday period is one of the best times to get deals, which will help save a lot of money, he says.

"Planning for the next year should start right away," he says. "When it comes to Boxing Day, and that week afterwards, Christmas cards are routinely 75 per cent off… take advantage of the timing of when things are on sale."

2. Reset expectations.

Before you start checking people off your shopping list, approach your friends and family and ask if they want to change the gift-giving tradition this year, says personal finance expert Bruce Sellery.

It may be that everyone is rushing out to buy a gift because it's expected, and not necessarily what the family would like to do, he says.

Open up the conversation to your loved ones about whether they would like to draw names for gifts out of a hat, or perhaps pool their money for a donation to charity, he says.

"It's about being conscious about the tradition," Sellery says. "I have the view that traditions can evolve over time. But not everyone has that view. Some people equate the unwrapping of presents under the tree as being a key part of the tradition… Which is fine. But ask the question so you can have the dialogue going."

3. Make a list and detailed budget.

Setting a budget for holiday expenses is key because it guides all your purchases and ensures you don't over spend, says Sellery.

"It doesn't matter what the budget is. It matters that you have a number," he says. "Because if you have a number, it drives a lot of the decisions."

Be inclusive in those expenses, he says. It's important not only to tally up the costs of the gifts for your loved ones, but the associated expenses of food, travel, wrapping paper and even new outfits for holiday parties, he says.

Once you have a clear picture of what you need to buy, and how much you can afford to spare, then you can tweak your budget to allocate more money to purchases that are more important, says Sellery. Perhaps you want to skimp on the tree, but splurge on gifts for your friends, he adds.

"What you should spend is a function of your income, it's a function of your current debt levels, it’s a function of your circumstances, and it's a function of what's important to you," Sellery says. "It's about making these kinds of tradeoffs."

4. Use the payment method that suits you.

When heading out to the shops, there are benefits and drawbacks with each method of payment, and it's important to choose the one that suits your needs.

Using cash or debit – in other words, money on hand – is recommended for those who might be tempted to overspend with a credit card, says White.

Conversely, consumers could benefit by using their credit cards to rack up useful rewards points, says Sellery.

Another tip is to look for unused gift cards lying around the house and use them towards your holiday purchases before they expire, says Banerjee.

"A lot of people end up not using a lot of gift cards," he says. "Might as well use it before you lose it."

5. Avoid traps at the till.

At this time of year, retailers are likely to be pitching extras to customers, such as in-store credit cards. The discount they offer on that purchase if you sign up for the credit card may be tempting, but Sellery advises consumers to stay away.

"It's bad news for your credit score, it's bad news for the amount of money you're going to spend," he says. "It's just bad news."

Consumers should also avoid paying an extra fee for extended warranties offered by retailers for items such as electronics, says Banerjee.

'If your TV breaks, you'll be fine. You don't need to get an extended warranty.' — Personal finance expert Preet Banerjee

Insurance of this kind should only be purchased to protect against "catastrophic losses," he says.

"If your TV breaks, you'll be fine. You don't need to get an extended warranty. It already comes with a warranty, and, if you can use your credit card responsibly, many credit cards offer extended warranty protection as well," he says.

Also, be a wise consumer and check out the retailer's return or exchange policy, says White.

"And if you're concerned about buying something, get a gift receipt, and check out the exchange or return policy," she says.

Lastly, shoppers should avoid splurging on themselves, says Sellery.

"Unless you yourself are on your Christmas list, don't buy yourself anything. A lot of people buy themselves things when they're Christmas shopping."