Christmas may still feel distant, but the cost of food, drinks, presents, and entertaining can quickly add up. To help you prepare, Rajan Lakhani, a personal finance expert at the smart money app Plum, has shared five essential steps for building your festive fund now.
Set a realistic savings target
Without a clear target, your goals lack direction, making it easier to fall back into frivolous spending. Setting a realistic target and identifying where your savings will come from gives your budget purpose. Instead of telling yourself to 'try not to overspend', establish a specific goal with a clear amount to save over your chosen timeframe.
The lead-up to Christmas often brings unexpected costs, so factor a buffer into your budget, especially if your social calendar is busy. Putting this money aside in a separate savings pot helps you track your progress while avoiding the temptation to dip into it for everyday spending.
Agree on your non-negotiables
Review your spending with a critical eye to identify savings opportunities. Could you save on the weekly shop by changing supermarkets or switching to own-brand products? How much are you spending on small luxuries like coffee or takeaways, and could you live without them for a few weeks?
Check if you can cancel any subscriptions or direct debits, as these often build up over time and are forgotten. When you do need to spend, use discounts or get cashback wherever possible, as these can lead to hundreds of pounds in extra savings.
Visualise your savings habits
With your income and outgoings optimised, turn your attention to your saving habits. As well as saving regularly each week, set aside a chunk of money on payday to pay yourself first rather than seeing what's left at the end of the month. Automating this process minimises effort and makes it harder to spend the extra savings, with smart apps making it easier.
Identify ways to maximise your income
Next, look at maximising your income. Can you work extra hours or ask for a pay rise? Consider a side hustle, remembering you can earn up to £1,000 per year tax-free this way. Sell valuable items or clothes you no longer need on eBay or Vinted, or earn extra money by tutoring, dog walking, or completing surveys at home in the evenings.
Whatever works for you, any extra money you earn should go straight into savings. Put it in a separate savings account immediately to ensure it doesn't get spent.
Make your money work harder for you
Finally, ensure any money you save works as hard as possible. Over this short time frame, you may not earn a huge amount of interest, but every little bit helps. There are very good, inflation-beating rates available on easy access accounts and Cash ISAs at the moment, so do your research and shop around for the best rate.
One key tip to remember is to keep your money easily accessible if you'll need it in the run-up to Christmas. If you're struggling with your finances, contact Citizens Advice for help.
