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Frugality is a given this holiday season

Lean times demand creative ways to make merry: Be less lavish, shop early, haggle over prices, buy with cash, give heirlooms, make your own gifts and reuse decorations.

November 01, 2009|Andrea Chang

The holiday shopping season is getting underway, but despite the not-so-gentle prodding of retailers and some economists, Americans are in no mood to overspend.

Millions are still struggling with unemployment or reduced income. Others are concerned about job security, home values and their stock portfolios even though the U.S. economy is growing again.

Nearly two-thirds of consumers said the economy would affect their holidays, according to a National Retail Federation survey, with 84.2% of those respondents saying they would spend less.

They are people like Jaclyn Witt, an editorial assistant at Chapman University who is working less and worrying more this holiday season.

"I went from working full time to working part time, so I have to be more price-conscious," said Witt, 25. "I can't go buying whatever I want now. As it gets closer to Christmas, it's becoming more of a concern."

But you can still make merry without blowing your holiday budget. And we're not talking regifting a fruitcake either. Little tricks like shopping early, avoiding credit cards and sticking with last year's decorations could help you save a bundle.

Setting a budget

There's no formula for how much you should spend on the holidays, but some experts suggest limiting yourself to what you earn after taxes in three working days.

A more generous measure is to spend no more than 1% to 2% of your annual income on the holidays, said Morris Hamm, a personal finance expert and professor at the University of Phoenix. That's down from the 2% to 3% he recommended before the recession.

Once you've set a budget, make a list of everything you plan to spend money on. Include not just gifts for family and friends but travel expenses, entertaining costs and decorations such as the Christmas tree and tinsel.

If that total is significantly over the amount you plan to spend, start cutting items (or people) out.

"The economy has been so bad for so long that people are going to be thought of not necessarily as cheap but frugal and wise," Hamm said.

Before you hit the mall, create a separate budget for every person who remains on your list -- and stick to it. Think of a few gift ideas in advance and jot down their approximate cost; that way, you're less likely to make impulse purchases.

Price wars

The best holiday deals will be found in toy aisles and on bookshelves this year, industry watchers say.

For weeks, the nation's top sellers have been aggressively slashing prices in an all-out holiday toy war.

In September, Toys R Us Inc. announced that it would open 350 Holiday Express toy locations nationwide that would feature the "hottest gifts" -- including dolls, action figures and educational games -- at "great values."

Two weeks later, Wal-Mart Stores Inc. said it was expanding its lineup of $10 toys from 10 items last year to more than 100 this holiday season; some of the toys will feature markdowns of as much as 50%.

The world's largest retailer also said it would announce new holiday pricing reductions every week.

"Many of these prices represent the lowest we've offered in years, because we know these are tough times for American families," Eduardo Castro-Wright, vice chairman of Wal-Mart, said in a statement. "We made a purposeful decision to focus initially on everyday staples as well as items that often require larger spending commitments in preparation for Thanksgiving and Christmas."

A price war has also broken out among booksellers, with Wal-Mart, Target Corp. and Inc. lowering online pre-order prices on several titles to $9 or less.

"This time last year, everyone was hit with the shock of the meltdown, so any price promotion there was reactionary," said Sean McGowan, an analyst at Needham & Co. "This year, battle plans have been drawn."

Cash or layaway

An easy way to manage your budget is to stick to cash. Don't succumb to the temptation of plastic.

"With credit cards it's like free money," said Jackie Fernandez, a partner at accounting firm Deloitte & Touche. "By the time the bill comes, you're way over the budget that you set."

If you have to use credit cards, fewer is better.

Gail Cunningham, a spokeswoman at the National Foundation for Credit Counseling, recommends using only two credit cards: One for the charges you intend to pay off that month, and the other for purchases you know you'll have to pay off over time.

"With the holidays you may have to admit that you won't be able to pay off everything in January when the bill arrives," she said. "But don't allow yourself to spend more than you can pay off in three months."

Layaway is another tactic that has made a comeback during the recession.

Shoppers put down a deposit on the items they want and pay them off -- usually over 30 to 60 days -- before taking them home.

Layaway became popular during the Great Depression and was commonly used by consumers who couldn't afford to pay cash upfront. But once credit cards became widely available, layaway all but disappeared.

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