One theory for the origin of the term “Black Friday” is that it is the first day of the year the retail industry breaks even. It may also be the first day you go into the red for the holidays. The retail industry has been hard at work pumping up sales since Halloween, but the true frenzy begins on Friday. In it’s October survey, The National Retail Federation found that Americans are planning to spend an average of $805 per person this shopping season, and if history repeats, much of that spending will be paid for with debt.

From another survey done after last year’s shopping season by Magnify Money, those who used debt to pay for their holidays added $986 to their debt load. Most people expected to take more than five months to pay off the shopping spree, with a substantial number planning to make only the minimum monthly payment. Assuming the average credit card interest rate reported by the Federal Reserve Bank of 12.10%, if you take 5 months to pay off this new balance, you’ll pay about an extra $40 for what you bought. That could be another present or a dinner out. If you make only the minimum payments, you’ll be paying for five years and pay an extra $265 for what you buy. To figure out how your credit card debt and payment plans will pan out, check out this calculator on BankRate.com.

Gift giving and entertaining are an integral part of the season in our culture. It’s an emotional time, and it is easy to get carried away with spending. That can spill over and get in the way of meeting your financial goals. The best way to avoid having the holidays be the next financial hole you have to fill is to start with and stick to a plan.

1. Create an overall budget for your holiday spending before you begin shopping. Allocate the budget among your recipients, i.e., $50 for Mom, $35 for Aunt Jean. You get the picture. Not all of your spending will be on gifts. Make sure you account for the extra cost of holiday meals and/or parties. Ideally, your budget will not cause you to add to your debt.
2. Decide ahead of time what you will buy for as many gifts as possible. If you know what you are going to buy, you can more easily shop for the best value, and you are less likely to spend more than your budget.
3. Internet shopping can be a great approach, since you may be less tempted to impulse buy. Many internet retailers are offering free shipping for the holidays.

Perhaps you are part of a family of competitive gift givers. You may feel your gifts have to live up to the gifts your family give you. If this is making it hard for you to keep a reasonable budget, consider having a discussion with your family. Stop the cycle by setting a cap on the price of gifts, and/or limiting the number of gifts by assigning one or a couple of family members to each person, secret Santa style.

You can reduce the cost of the gifts you give by making them as well. When my daughter Kaye was three, we started a tradition of making gifts for Kaye to give to family and friends. I didn’t want to just go buy gifts and give them in her name. I wanted her to participate in the giving, and at three, her budget wasn’t very big. The first gifts we made were hand print flower pictures, and some are still hanging on the walls in family members’ homes.

We did several projects over the years, but since she’s gotten older, we’ve settled into baking for Christmas. One year we made 1,000 cookies. While for most people we know there isn’t a single thing that I could buy them that would hold much meaning, our cookies are legendary. Our friends and family look forward to getting them every year.

There is a lot of pressure to overspend during the holidays. What would the holidays be without a chance to gather with those we love and brighten their day with a thoughtful gift. But don’t let the holidays derail your financial plans. Setting a budget and planning before you shop can keep your holiday spending from getting out of hand.

Image courtesy of samuiblue at FreeDigitalPhotos.net