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How not to blow your holiday budget: 6 tips

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By Maryalene LaPonsie/MoneyTalksNews

The National Retail Federation says you'll probably be $804 poorer after the 2014 holiday season wraps up.

That's how much the industry group says consumers plan to spend this year. While the lion's share of that money goes to family, you also expect to spend $80 on friends and $26 on co-workers. Even Fido gets in on the action, with pet lovers planning to spend $30 on their nonhuman companions.

That's how much you plan to spend. What about the amount you actually spend?

Behavioral economist Hersh Shefrin says even many of the holiday shoppers who take the time to write a budget, 36 percent of them, will overspend. And for the least accurate budgeters out there, Shefrin found they spent 30 percent more than planned. That means someone with a $804 holiday budget may end up spending $1,045 and end up with a week or two of ramen noodle dinners to make up the difference.

Follow these six tips to prevent a post-holiday spending hangover.

Create a budget

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I'm going to go out on a limb here and say that many people probably don't even have a written budget for their holiday spending. Instead, they may have a hazy idea of what they can afford.

Let's be clear: A hazy idea is not a budget.

Within the next week, you need to sit down (with your significant other if you share the bills) and write down your holiday budget. To do this, you need to include all these:

  • Brainstorm every gift you need to buy. A common mistake is leaving out all of the little gifts that can add up. I'm talking about the white elephant gift for the family party, the office Secret Santa exchange, and all the service workers you tip extra.
  • Write down all your holiday food expenses. Your normal grocery budget isn't likely to absorb things like the ingredients for a family feast or ingredients for dozens of cookies.
  • Assign a dollar amount to every line item. Every person and event needs a specific budgeted amount.
  • Add it all up and balance that against what you can afford. Once you get the total for everything, you may find you have to pare down spending for some people or eliminate others altogether.

Get creative

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If you don't want to eliminate people from your gift list, it's time to get creative. What can you do that your family and friends could use or would like? In this case, we're talking about things that may cost more time than money.

Crafty folks have all sorts of options, from knitting scarves to creating photo scrapbooks. Even if you're not particularly crafty, you can find online instructions for inexpensive handmade gifts like these:

  • Baking mixes
  • Bath salts
  • Decorated bookmarks
  • Painted picture frames
  • Rice bag warmers
  • Coasters

Of course, don't overlook the gift of service or memories either. Your great uncle may not need another knickknack, but he might need someone to rake the lawn. Meanwhile, the best gift you may be able to give your grandma is to spend the afternoon with her. Every family is different, so review your list and try to identify which individuals could benefit from these types of gifts.

For gifts of time or service, create a decorative homemade gift certificate or coupon to place in a card.

Inventory what you have

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Some are appalled at the idea of re-gifting, as if we're suppose to cherish for all eternity every knickknack we've received, but there's really no good reason to keep things you don't use or like.

Step 3 is about more than re-gifting, though. It's about looking through your house for anything that could be used to reduce your holiday budget. Maybe you went a little wild during the last Yankee Candle sale and have a stockpile of scented wax in the closet. Perhaps you have a gift certificate for a store at which you personally never shop but that sells perfectly good giftable items. Or maybe you can redeem credit card rewards points for gift cards or merchandise.

Depending on your family dynamics or the age of the recipient, you may even be able to gift gently used items. In fact, that may be the preferred way to find an item for white elephant exchanges and the like.

Whether you're re-gifting or wrapping up something you already have on hand, the key is to be sure you're not trying to shoehorn a random item onto your gift list. If there's no one who would truly appreciate and enjoy the item, set it aside and move on.

Start now

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Waiting until the last minute is a surefire way to blow your budget. When you're shopping on Dec. 23, you tend to get a bit desperate and buy the first thing you see.

By starting now, yes, in mid-November, you'll have plenty of time to watch for sales and coupons for the gifts you need. Plus, the crowds will be more manageable this month as opposed to next month.

You can read our article on six money-saving apps to help you find the best deals.

Not only can starting early save you money in the store, it can also give you time to plan and make some homemade gifts.

Track your money as you spend it

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It's not enough to simply have a budget; you also need to use it. And because holiday spending can add up so quickly, you need to be tracking your money in the moment.

While you could use an old-fashioned pen and paper to record purchases as you shop, a smartphone app may be the best way to ensure you'll always have your budget with you should you end up doing a little impulse buying. Goodbudget is one app that lets you set up 20 envelopes, and for the holidays you could use an envelope per person if your list is that small.

Otherwise, you might want to try one of these holiday-specific spending apps:

Cross names off your list and then stop shopping

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This final step may be the most difficult for some. I know it is for me.

Once you have found the right gift, purchased it and crossed the person off your list, it's time to stop shopping for them. Stop looking at ads and stop browsing displays with that person in mind. When your entire list is complete, stop shopping altogether.

It can be tempting to keep going to the stores and shopping websites, especially when the TV and newspaper ads continually promise amazing savings. You almost feel as though you're missing out by not jumping on the deals. But unless you went under budget on your previous purchases, any more buying is liable to break your piggy bank.

If you do see something you absolutely must buy for someone already crossed off your list, return the item you already bought before spending more money.

How do you do each year? Do you stay on target or always find yourself spending more than expected?