Six spending tips to get you through Christmas

Things can go wrong over the festive period, so always have an emergency fund, writes Louise McBride

THIS time two years ago, I was stuck at the end of a check-in queue in a tiny airport in Lapland — praying that my then four-yearold daughter and I would make the flight home. There were delays and difficulties checking people onto the plane — and pandemonium in the airport. I had visions of being stranded in Lapland for Christmas. At that stage, I simply wanted to get home to the rest of my family so that I could spend Christmas with them. Lapland is also a very expensive place to visit, so being stranded there would run up one hell of a bill.

Somehow, my daughter and I made it onto that plane — with only minutes to go to take off. I vowed never to travel so near to Christmas again. Christmas is a time of heightened emotions, activity and cost. So financial pressures are often felt more acutely in the run-up to and over Christmas than at any other time of year. It is for this reason that the festive season can teach us important lessons about money. Here are some of them.

Have an emergency fund

I learnt an important lesson from my Lapland experience — always have an emergency fund handy.

Things can go wrong over Christmas and as it’s the holiday period, you often will have to pay more to get problems resolved then than at other times of the year. Last year, for example, Storm Frank caused havoc across the country a few days before New Year’s Eve — and many homes were seriously damaged as a result. Had you hired a handyman back then to repair damage caused to your home by that storm, you probably paid over the odds because it usually costs more to hire someone over the Christmas holidays.

The damage caused by winter storms can also be quite serious. Indeed, many homes were badly flooded after Storm Frank.

Having an emergency fund in place to cover unexpected or once-off expenses is always a good idea — not just for Christmas but for any time of the year. Unexpected and unavoidable costs are usually quite high. For example, it could cost you more than €3,000 to get a new gas or oil-fired boiler (depending on the make) if your boiler breaks down. A new clutch for your car could set you back €400.

You should aim to build up an emergency fund equivalent to between three and six months of your take-home pay, according to John Lowe, author of the Money Doctor books.

It is better to have an emergency fund in place to cover unexpected costs or a sudden loss of income than to have to borrow the money. Credit cards are often relied on by people in the midst of an emergency but credit cards are one of the most expensive ways to borrow money and so could land you in debt down the line.

Buy travel insurance if visiting the folks abroad

People often fly abroad for Christmas to visit relatives or simply to soak up the sun.

Be sure to buy good travel insurance before heading off. A medical emergency abroad could cost you a lot more than your holiday. The bill for a hospital stay in Europe could run into the tens of thousands, while in the US the bill could run into the hundreds of thousands.

Your travel insurer will usually foot the bill for a certain amount of medical expenses should you or one of your family end up in hospital while abroad. However, know exactly what you’re covered for. “Before you head off, phone your travel insurer and tell it where you’re going, how long you’re going for, and what activities you’re planning,” said Dermot Goode, health analyst with totalhealthcover. ie. “Your insurer will tell you what you’re covered for, where to go should you need medical treatment when abroad, whether or not you should hand over your credit card to the hospital, and who to phone if you need to make a claim. Too many people don’t do this and so they end up in a traumatic situation in a country where they don’t speak the language — and with a hospital demanding their credit card details.”

Be sure too to pack your health insurance membership card if you have private health cover — and the European Health Insurance Card (EHIC) if travelling in Europe.

Prepare for big expenses

Christmas teaches us the importance of planning ahead for big ticket events. Don’t stick your head in the sand and hope that you’ll somehow muddle through.

Know exactly what bills you will face — and how exactly you’ll pay for them. You’ll be surprised at just how much money you need to set aside for Christmas if you sit down and make a list of all the costs that will crop up. Obvious expenses include the Christmas dinner and gifts but expenses that can be overlooked and not budgeted for include dinner parties, babysitters, postage of gift parcels and Christmas cards, entertainment for the children over the holidays, and the ever-more expensive trip to Santa.

Opening a regular saver account is one of the best ways to prepare for Christmas or other big ticket events (such as weddings or milestone birthdays), according to Lowe. Choose an account which pays better interest than most. The EBS Family Savings Account and the KBC Extra Current Account both pay 3pc interest — which is the best interest rate you’ll get on a regular saver account.

Don’t use your credit card to take out cash

Many of us are financially stretched around Christmas and so the temptation to use the credit card to withdraw cash can be high. This is a very expensive way to borrow money. The interest charged on credit card cash withdrawals can be as high as 21pc and most credit card providers (apart from AIB and Permanent TSB) hammer you with interest the minute you use your credit card to withdraw cash — even if you repay your bill on time.

Credit card cash withdrawals are treated differently to purchases. When you use your credit card to buy something, you can avoid getting charged interest as long as you repay your bill on time (usually within 56 days). Should you use a Bank of Ireland, KBC, Tesco or Ulster Bank credit card to withdraw cash however, you have no grace period so you’re charged interest from the time you take out the cash. With AIB and Permanent TSB, you can avoid getting hit for interest on credit card cash withdrawals if you repay your bill within 56 days of taking out the money. (The exceptions are AIB’s Budget Mastercard and Low-interest Mastercard as neither has an interest-free period for cash withdrawals.)

Don’t rely on your Christmas bonus

Most of us don’t unwittingly buy our Christmas tree with the roots intact as Clark Griswold did in the well-known movie, National Lampoon’s Christmas Vacation.

However, people often make the mistake of committing to major expenses without really understanding how they will pay for them or in the hope that one’s financial circumstances will have improved by the time the bill arrives. Griswold made this mistake when he put an advance payment on a swimming pool before his Christmas bonus arrived. The important lesson from this movie is to only commit to something if you can afford to — and based on your financial circumstances at the time.

Give your finances time

Last-minute Christmas shoppers are vulnerable to being ripped off because, in their rush to buy something, they often make hasty decisions which are often bad ones, so it’s no surprise that some of the biggest financial mistakes are made when people are under time pressure. If you’ve made a panic buy or decision in the runup to Christmas, learn from that experience.

“When it comes to managing our finances and making financial decisions, most of us are probably not giving it the time that we should,” said Bernard Sheridan, director of consumer protection at the Central Bank. “Take that little bit of extra time after Christmas before making any important financial decisions — it could end up saving you money. When your motor, home or health insurance comes up for renewal, there is an opportunity to consider whether you can get better value with the same company or by switching insurer. When your annual mortgage statement comes through the letterbox, take a little time to consider if you could get a better interest rate.”