Moneywise: Canadians overspending their holiday budgets

While holidays may be a great time to enjoy new adventures or simply spend quality time with friends and loved ones, many Canadians may be overspending on them and building up debt which could set them back in achieving their long-term goals.

A recent poll by Edward Jones found that while 67 per cent of Canadians create a budget for holiday expenses, one-third tend to overspend.

Canadians in the Atlantic region were the most likely to create a budget (74 per cent) but they also were the most likely to overspend.

Ontarians and Western Canadians were a little less likely to create a budget (65 and 64 per cent respectively) but were almost as likely to overspend (33 per cent and 30 per cent respectively). Quebecers were the most likely to stay within their budget.

The poll found that one third of Canadians used credit cards to pay for expenses during the Christmas holiday season and less than half (48 per cent) saved up ahead of time to pay for their spending. Twenty-two per cent said they regretted their holiday spending when thinking back to the post-holiday Christmas season.

“While it’s encouraging to see that many Canadians are putting together a budget for their holiday spending, it’s not so encouraging that a significant percentage of them are going over their budgets,” says Gabriel Leclerc, an Edward Jones financial adviser in Ottawa.

Leclerc attributes overspending on holidays to two main factors – underestimating the real costs of vacations and dipping in to the holiday budget to pay for other things.

The problem comes down to a very common issue — are Canadians really planning their finances the right way?

“When you create a budget you have to do it in the context of your cash flow,” says Leclerc.

“You have to set your expectations and then allow for the unforeseen, for life’s unexpected happenings. All too often things happen that people had not accounted for and they end up having to dip into other areas such as the vacation fund and then they take the holidays they had planned for and overspend their budget for that item.”

Another problem is that many people don’t adequately budget for the real-time costs of their vacations by not factoring in such things as the changes in the value of the Canadian dollar relative to the U.S. and other currencies, inflation, and rising energy costs.

A few years ago, for example, the Canadian dollar was at par with the American dollar. “That may be fresh in their minds but the dollar today is down to about 76 cents, which does have an impact of your travel costs. We already are seeing Canadians shortening their trips or shopping sprees to the United States as a result of the weaker dollar.”

As well, gasoline costs have which can add to the cost of travel by air and road. And then there are the annual increases in cost of living and inflation which need to be taken into account.

“A lot of people don’t take these increases into consideration,” Leclerc says. “A vacation today could cost significantly more in a year or two from now and those increases need to be put into your holiday budget.”

Leclerc says people need to adhere to the basic planning principle of paying yourself first. “Get all your credit, income and investment statements, take care of your debts, expenses, retirement savings and other necessary payments and then plan for discretionary items like vacations. It’s all about planning and prioritizing what you need versus what you want.”

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

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