Set some money aside now for holiday gifts

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This time of year, most of us are dreaming of air conditioning, not a white Christmas. It's hard to start thinking snowmen and eggnog when you're still mopping sweat from your brow. But just a bit of planning now can mean a happier holiday. With the sluggish economy, high gas prices and rising food costs, a lack of early financial planning for the holidays is especially dangerous this year, says Ben Linton, a bankruptcy program manager with the nonprofit Consumer Credit Counseling Service. "For the people who wait till December to start saving, in January, they will likely feel the hangover from that spending," he says. "It feels weird to be talking about Christmas in the summer, but people really need to start planning and saving early." On average, shoppers spent more than $850 on gifts alone for the holiday season last year, according to the American Research Group; those who traveled dropped more than a grand - easily - on holiday expenses. Here's how to avoid a New Year's spending hangover. n Make a budget - and check it twice. It's the one task Linton assigns to all of his clients. Think about everything the holidays entail, right down to the cranberry sauce for the turkey dinner. Already have a list of gifts? Don't forget the paper and ribbon to wrap them all up in. Once you have a total, divide by three to figure out the amount you need to set aside per month, starting now. If the number has you wanting to go into hiding until the holidays are over, decide where you can make cuts. Be ruthless. n Resist the urge to go hog-wild. Even though Peggy Campo of Indianapolis, thinks of herself as a good planner, she typically doesn't start thinking about holiday spending until November, and she figures she can't be alone. So she advocates a sensible spending approach. "I personally save costs by buying my family only presents that they actually need," she says. "And if I incur any credit card debt, I pay it off right away." n Put away the plastic. With some companies charging more than 30 percent in interest, Campo is wise to minimize her credit card use, Linton says. Even slight overspending on the holidays can take months or years to fully pay off. "People tend to spend and overspend when they wait till the last minute," Linton says. "And if they can't pay in cash or make up their full credit payment, they will definitely be facing a headache later." n Make yourself save. Just throwing your pocket change into a jar every day and cashing it in later, or setting aside money you'd otherwise be spending on afternoon latte runs, can add up fast. But if you'd like a more structured plan, see if your bank or credit union offers a holiday or "Christmas Club" savings account that automatically plucks money from your paycheck throughout the year. While they generate only modest interest - typically 0.75 percent to 1 percent - Rachel Ellis, a member services representative with Forum Credit Union in Indianapolis, says this option can build discipline and help you avoid falling short on funds once the holiday season comes around. "It's easy to say, 'Oh, well, I'll put $5 from my paycheck aside,' but after paying bills and everything, your extra cash can be depleted pretty fast," Ellis says. "But when you actually put that money into the account, you're more likely to see it stay there until October or November, when we send you your check." As an incentive to keep the money in the account, a small fee is assessed for early withdrawals. Linton recommends opening one of these accounts in the beginning of a new year and automatically depositing a small amount each week or month. Three ways to save 1. Start shopping today. Being one of those people that is finished with holiday shopping when everyone else is still cleaning up from Thanksgiving dinner doesn't just get you bragging rights - it gets you deals. Giving yourself the time to comparison shop and to find really good sales nets you better bargains than if you have to go on a last-minute spending spree. 2. Prune your holiday card list. Do you really need to "stay in touch" with the woman whose cubicle adjoined yours three jobs ago? 3. Rethink the decorations you haul out every year. To get your home in the holiday spirit without spending any money, update what you already have. Tired of the same old red-and-green reindeer? Paint them a deeper burgundy and loden green, or go metallic with silver and gold. Got a Hanukkah tablecloth that manages to get a new stain every year? Turn it into cloth napkins, cutting around the blemished and yellowed parts. Candy-cane sweater you never wear? Might look cuter as a pillow.