Why you shouldn't be hard on yourself about Christmas overspending: Sarah Coles

It seems ridiculous. We’re all sensible adults, who have a decent grip on our finances for most of the year. We all knew Christmas was coming, and we’ve all had a year to prepare for it. You may well wonder why things have gone so awry. The good news is that it’s not your fault.

Fundamentally, it’s an incredibly expensive time of year. The day itself means buying presents and food, but we also tend to have more time off and arrange more things to do as a family. We celebrate with friends too, and there are things like the work Christmas party. They all cost money, so we were always going to spend a bit more at this time of year.

Once we start spending, there’s also a risk that we give in to momentum. At this stage in December, we might already have spent too much, so we feel as if we may as well finish the job. We may give ourselves permission, on the grounds we will put things right again in January. However, there’s no reason to wait. You can stop overspending at any time, and in many cases, you can unwind it and return gifts you can’t really afford. It’s worth fighting the momentum if your spending is snowballing.

The fact there’s so much to buy, and so much going on, can feel overwhelming, which raises another potential problem. It means we can end up throwing money at our to-do list, buying the first thing we find rather than shopping around, buying more expensive pre-prepared food, and spending money on gift-wrapped options sent direct to the person we’re buying for. It cuts down the endless list of things we need to do, but it comes at a cost.

If you find yourself falling into this trap, the easiest answer is to do less. There may be some things you can cut out altogether. There may be some you can delegate to other family members. If you’re having family over for Christmas, can they bring a couple of meals, for example? It’s often one person in the family who becomes the default Christmas person, doing all the planning and shopping. Sharing the load will give you time to solve problems without spending more.

But the key in many cases isn’t about practicalities and logistics. For many people, the real issue is that money and emotions have been bound together at Christmas, so instead of making financial decisions, we’re driven by our hearts.

Over Christmas, people can feel they’re buying gifts to show people how much they love them. It means they can start to feel that in order to show the depth of their love, they need to spend more. We feel the pressure of social expectation too. For some people, it’s having the perfect Instagram-ready home. For some, it’s the kind of feast they serve up in festive adverts. For others, it’s important to have the latest version of shiny new things that their peers have. If we don’t somehow provide the ‘perfect’ Christmas by any one of these standards, we feel like we have let our family down. It’s no wonder that so many people feel the pressure to overspend.

It's incredibly difficult to step away from this way of thinking, but try to take a quiet moment to think about what you’re doing and why. Whose expectations are you trying to live up to, and will they really mind? Talking to your family can reveal the things that really matter to them and those you can jettison.

Our hearts aren’t the only things that lead us astray: our brain chemistry has a lot to answer for too. There’s a risk we end up using our Christmas shopping trips to chase dopamine and endorphins, because they make us feel happy at a time when we’re horribly stressed out and desperately seeking some Christmas cheer. Spending money temporarily boosts our mood by releasing both. It’s where the idea of retail therapy comes from. In fact, it kicks in even while we’re browsing the shelves, because we’re anticipating the pleasure of buying something. Impulse spending is particularly likely to offer a dopamine rush, which is why we can end up going out to buy grandma a new cardigan and come home with matching pyjamas for the whole family and still feel a sense of achievement.

The only way to get on top of this is to appreciate exactly what’s going on, and be aware of the pleasure-seeking aspect of shopping. It’s worth making an effort to separate the two things, so you take a list out shopping and ruthlessly stick to buying just what you need. Then you can get a dopamine rush in a way that’s less expensive – like listening to music, or dancing round the kitchen when you get home.

As in all things, there needs to be a balance. If you can afford a few treats and expensive gifts, then there’s no harm in spoiling yourself and your family. However, if you spend money you can’t afford for the wrong reasons, then the short-term boost will soon give way to regret and anxiety. The easiest approach is to separate the emotional from the financial, and work out how to show your love, treat yourself, and have fun, without busting the budget. You can still prioritise a few treats, so you have some special experiences, without thinking that the festive period has to be wall-to-wall indulgence followed by instant and painful regret.

Tax relief misunderstandings

Pension tax relief is a major incentive to get people saving for retirement, but our research shows that less than a third of people know what it is. Some people think it’s a way to get a completely tax-free income in retirement, while more than two in five are completely in the dark.

While it’s fair enough that people may not be particularly excited by anything tax-related, it is worth getting to grips with tax relief. It’s essentially where the taxman gives back some of the tax you have already paid on your wages, in return for you paying into a pension. If, for example, you’re a basic rate taxpayer, the top slice of your income faces tax at 20%. It means if you wanted to put £100 into your pension, you would only have to put in £80 and the taxman would top it up with the other £20.

If you’re a higher-rate taxpayer, you’ll pay a top rate of tax of 40%, so a £100 contribution would only cost £60, and the rest would come from the taxman. The logistics of how it actually works gets a bit more complicated for higher earners, and there may be a tax return involved. However, you don’t need to be across all the boring details to understand the principle – and appreciate just how tax-efficient it can be to pay into a pension.