How to Avoid Charging Gifts

How to Avoid Charging Gifts
Stefanie O'Connell
By: Stefanie O'Connell
Posted: March 7, 2014's popular "How-To" series is for those who seek to improve, rebuild or better understand their subprime credit rating.

Programs like layaway and tools like credit cards make gift purchases a common problem area when it comes to overspending.

Rather than buying gifts you can’t afford and spending the next weeks or months working to pay them off, consider these alternatives…

1. Open a “giving account.”

Open a separate bank account to save up for gift purchases throughout the year.

To fund the account, set up an automated payment each week or month. Somewhere between 1 and 5 percent of each paycheck is a good benchmark.

It’s enough to add up to a significant amount for gifting but not so much that you’ll really miss it from your paycheck.

2. Know your limit.

By keeping this money separate from the rest of your finances, you won’t be able to spend it preemptively. You’ll also know exactly how much you have to budget for your gifts.

The separate account puts a clear limit on how much you can spend.

“Start a giving account today

so you’re not reliant on credit.”

3. Consider timing.

While contributions to the giving account should be made steadily over time, gift purchases have their own time table and are variable in size. Make note of the dates and times of the year when you know you’ll need a fully funded giving account.

For example, summer wedding season and the holidays are two times of year that typically require some significant gift spending. Prepare yourself by creating a budget within your giving account.

For instance, if you have an anniversary or birthday to buy a gift for right after a major holiday, you’ll want to make sure you’ve left enough in the account to fund that purchase.

4. Save and/or share the extras.

While you shouldn’t spend more than you’ve set aside in your giving account, you can always spend less and use the extra money to contribute to your 401(k) or add to your other savings goals.

You also can use your giving account to give beyond holidays and social occasions. Charities and causes can be supported from this account. Donations to those in need are sometimes the best gifts of all.

Start a giving account today so you’re not reliant on credit come your next big occasion.

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