It's not too late to cut back on holiday spending

Black Friday and Cyber Monday have come and gone. So you may think that setting limits on holiday spending is a lost cause, right?

Not so, said certified financial planner Jamie Clark, as there are still the year-end festivities. "It's never too late to make a plan."

Dr Chuck Howard, an associate professor of business administration at the University of Virginia's Darden School of Business, said research suggests you will spend less by setting a holiday budget that is "optimistically low".

That is because even when compliance with budgets is weak, setting stricter, even somewhat unrealistic budgets tends to lead to lower spending, according to a study he helped write on the influence of budgeting on personal spending.

Dr Howard cited this example: Say you usually spend US$500 (S$670) a month dining out. You may think a realistic budget is US$400 a month. But if you really want to cut back, you should set a budget of, say, US$250. That way, if you spend US$350, you have still spent much less than you used to.

A tight holiday-spending limit serves as a reference point, he said, and even if you surpass it, you will probably spend less than if you had set a higher limit or had not set a budget in the first place.

"It will positively influence their spending," he said. "It helps them spend less than they are used to."

The study, published in The Journal Of Consumer Research in 2023 and written with senior lecturer Marcel F. Lukas of banking and finance at the University of St Andrews in Scotland, is based in part on an analysis of the budgets and spending of thousands of users of a personal finance app in Britain.

One caveat: Consumers must track their spending regularly, Dr Howard said, so they can see where they stand in relation to their goal. A variety of apps, like Monarch Money or Quicken Simplifi, can help you monitor spending. Dr Howard said he prefers an Excel spreadsheet, but he also knows people who use pen and paper.