Dec. 3, 2009— -- Budget is the word this year when it comes to holiday spending. But how do you stick to a budget once it's made?
We all know how easy it is to overspend on expensive gifts for your kids, and all those lavish meals for your relatives, but financial advisor Dave Ramsey from Fox Business Network says he has a holiday spending plan that just about anyone can stick to.
Create your holiday budget on an envelope, and put cash inside.
Ramsey says this idea may sound simple, but it's very effective. Write down every gift you have to buy and how much you plan to spend on an envelope, and then put the total amount of cash in the envelope.
"Santa Claus said make a list, check it twice!" Ramsey said. "When the envelope is empty ... go home!"
If you don't have enough in your budget to buy expensive gifts for your children or relatives, you simply can't.
Only use cash to pay for holiday purchases.
Ramsey says that if you're reaching for a credit card because you can't really afford an item, you should start paying for all your gifts and holiday expenses in cash. If you don't do that, you'll still be paying for the holidays in the summer. The average consumer plans to pay off their holiday bills in three months, but Ramsey says the true time frame is more like six months.
Don't worry about keeping up with the Joneses, he said. "The Joneses are pretty broke."
A new survey by the National Foundation for Credit Counseling found that 68 percent of respondents plan to pay for their holiday gifts in cash. Ramsey says if those people stick to their intentions, they'll be off to a good start in the new year.
Holiday Shopping Budget Advice
Set realistic expectations for gift giving.
You have to set realistic expectations for your family and friends. It's ok to say that you won't be buying gifts for everyone in your extended family this year -- some of them might even be relieved.
"If your relationship with your family is based on what you give them, you don't have a functional family," Ramsey said. "You've got to just look at them and tell the truth."
Ramsey suggests drawing names so that each person only buys a gift for one adult, and focus on gifts for the children in the family. But even children don't have to get everything they ask for. "My mom told me no at Christmas," Ramsey said.
If you're out of work, your budget is tight, or you're paying down debt, you can still enjoy your holiday. The season is about spending time with family, not getting more stuff.
"I'll just say hi and give you a hug," he said. "I'm not the government ... money's not infinite."
Don't loan money, gift it if you have it to give.
When spending time with family, there's a good chance someone will ask to borrow money. It happens a lot between siblings or when grown children visit their parents.
During the holidays, Ramsey joked that "the good news is, you get to see your family. The bad news is, you get to see your family."
If you have the money to help then give it as a gift; don't loan it.
"I don't loan people money because it messes with relationships," Ramsey said. "No is ok ...no is a great word!"
And if a relative asks you to co-sign a loan, that means the bank thought they were risky enough to need a co-signer.
During the season of giving, Ramsey advises giving love, not gifts.
"Love is not based on the stuff we buy or the money we pass," Ramsey said.