Starting saving unseasonably early? It's not a bad approach to Christmas planning

15 October 2018


David Douce
David Douce

It’s hard not to admire Selfridges for putting up their first Christmas tree in July. In terms of forward planning, that has to impress.

For the sake of economy and sustainability, it might make more sense for them simply to pop a bag over it in January and then uncover it a few weeks later, so that instead of having a short Christmas period, we have a short non-Christmas period. Or maybe we could just forget about the bag altogether and make it Christmas every day, just like what Wizzard would have wanted.

This does make a kind of sense in that many people are still paying for their previous bout of winter self-indulgence until the middle of the following year, some even later. Depending upon the offers available in the credit card market, some will manage to switch their debt across to reduce or eliminate interest payments. They are in effect rather like Selfridges, planning their Christmas all year round, albeit after the event rather than before it.

So what’s the big deal

You could argue that this doesn’t really matter – putting some money away each month to pay for the next Christmas isn’t very different from putting the same amount away to pay for the previous one. A ‘Savings Club’ or similar just reverses the timeframe of spending and saving from that of the credit card user. It is a little odd that those who save before the big day seem virtuous, while those who do it afterwards are criticised as spendthrifts.

On the other hand (this is about economics, after all), saving as a longer term activity is less likely to be tied to this ‘spend now, pay later’ style of consumption. It’s common to think of money as being divided up into different categories, and the stuff that is being used to pay off last year’s Christmas bills is very different from, for example, a family inheritance, or other lump sums such as a redundancy payment.

While the former flows through one’s life - and wallet - like a river, the other kind of money sits there more permanently, like a hill. The river money gets spent, and in the nature of rivers some more will flow along after it. The hill sort of money is supposed to stay pretty well the same height, until some really big event comes along. It can be admired from a distance, but not touched. With luck, there may be a slight increase in height as interest payments add to it, but they are rarely seen as the driving reason for looking after the money. It is something in the nature of that kind of money.

The ‘buy now pay later’ way of funding Christmases runs the risk of sabotaging your long-term savings to make up shortfalls when the pressure mounts on your finances. The key to reversing the cycle, and to freeing up more of your ‘river’ money so you can live in the present, is to start thinking of Christmases as one of those big important events and setting up your saving strategy accordingly.

Fixed term savings account - a good way to budget

Obviously, one way to avoid paying for Christmas until the middle of the following year is to join a savings club, or open an instant access saver and put a little away each month. If you’re looking to be particularly clever with your planning however (and you have enough available upfront), you could consider opening one or more fixed-term savings accounts.

These accounts fit seasonal saving very well, because the temptation to shave off the top of your ‘mountain’ money to deal with last Christmas is blocked by the design of the product. You have to dynamite the whole mountain to get at the money.

When used as separate pots, fixed term savings accounts allow you to build a mountain range. A series of fixed-term deposits maturing at different dates keeps some cash out of immediate reach, while making other lump sums available at shorter intervals. With a bit of thought, you can turn this into a long term plan for recurrent Christmases.