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In these challenging economic times, when the holiday season rolls around, many people find themselves overwhelmed financially when trying to buy gifts for friends and loved ones, throw holiday parties, and decorate their homes for the season. Many turn to credit cards, and experience the dreaded “holiday hangover” when their bloated credit card statements arrive in January. How can this be avoided? Your best plan of action is just that—a plan. Here are some tips for saving money now for next year’s holiday season.

Set your budget

This year, keep track of how much money you are spending on presents for family and friends, entertaining and decorations. This will give you a general idea of what you’d need to put aside for next year’s festivities (although it might be wise to “pad” your budget with an extra $100 or so, to account for unexpected expenses). Then, figure out how much money you would need to save each month in order to have the necessary funds available by the time next year’s holidays begin. Once you have that magic number, there are a number of ways you can reach this goal.

Find ways to save

When trying to reach a financial goal, every little bit helps. Look at your where your money is going, and think of ways to “trim the fat” from what you’re spending… that daily $4 latte, although tasty, could equal $120 per month towards your holiday budget. Cutting coupons, buying in bulk, there are so many ways to put a little more aside every month while still enjoying the same lifestyle. Sites like www.budgetpulse.com and www.wisebread.com are very helpful in terms of helping you mapping out every penny you spend, and living well on a smaller budget.

Open a holiday account

Many banks and lending institutions offer holiday savings accounts, which can often be opened with as little as $5! Contact your bank to see if this option is available to you, or just open a separate savings account that you’ve set aside for holiday expenses. You can deposit money into this account, or better yet, have the money debited automatically (soon enough, you won’t even notice this automatic withdrawal—even small amounts add up if consistently deposited over time.

Discipline, discipline, discipline

It’s hard sometimes, to stick to your guns about saving, when your goal seems so far away. But the sooner you start saving, the more money you will have to enjoy next year’s holiday season—without the dreaded credit card debt waiting for you in January. That might be the best gift of all!

How are you trying to save?

We all like new stuff. Whether it’s the latest Wii, a thinner flat-screen, a remodeled kitchen … or anything else for that matter, we’re human and we all like new stuff.

Here’s the rub though: if you buy it now on credit, you could end up paying for that new stuff many times over, and often long after the original enjoyment has worn off. As the current economic crisis has shown, most Americans have far too much debt in their households. One of the interesting trends we are seeing now, however, is that the trend toward individual and household savings is up for the first time in years.

So, how can you buy what you want and still earn interest? Yes, you read that right, earn interest, not spend money paying off the interest you’ve accrued.

• ü Step one: Stop and wait. You are not going to buy this item right now.
• ü Step two: Go to your budget, set a new goal, and decide how much you can set aside for it.
• ü Step three: Examine your current spending to see where you can cut back.
• ü Step four: Ask others to contribute to your goal.

Doesn’t sound like much fun? Well, grow up and consider the following.

Here’s how it works

Here are the many ways saving up for things works for you:

• You earn interest while you save rather than paying a credit company interest to borrow their money. Why pay them so you can use their money? Use your own.
• You now have time to the research, check the product’s reliability, and shop around to find the best price. When paying cash, you may have more room to negotiate.
• You may change your mind, decide you don’t want it any more, or you find you want something else entirely. It’s not so crazy – it’s happened before (you know it has).

In the meantime, you’ve saved some money, earned interest, and learned a little along the way.

What’s the ironic twist?

As more people start and many people continue to save money - putting aside a reserve fund and saving up for the things they want – production will decline as companies reduce their inventories due to the drop in immediate demand. Companies need our dollars to keep producing more, but is that your problem?

No. You don’t owe them a single thing and the ’spend money to help the economy’ guilt trip is over. None of us are fooled by it anymore. We have to protect ourselves.

What are companies going to do? They’re smart, they’ll figure something out. Plus, it will be fun to watch won’t it?

» FNBO Direct

This one is my personal favorite. FNBO Direct features no fees and no minimums (though they require a $1 deposit to open the account). Readers liked it for it’s consistently high interest rate, the availability of an ATM card, and because you can easily reach an actual human when you call customer service. According to Bankrate, FNBO Direct is also the safest of the major online banks.

» E*Trade Bank

Another of my favorites, E*Trade offers a highly competitive interest rate, no fees, quick transfers, integration with their brokerage accounts, and an automatic savings plan. There’s no minimum, though you have to deposit at least $1 to open your account.

» ING Direct

While it doesn’t have the most competitive interest rates, ING Direct was a popular option. The “Orange Savings” account comes complete with no fees and no minimums, and a slick web interface. It’s also very easy to create sub-accounts for different savings goals.

FNBO Direct and ING Direct seemed to be the best 2 non-broker online accounts. FNBO Direct was recently rewarded as the best online account from Kiplinger’s. They also have a bit higher interest rate and they do have a pretty slick online interface. My decision became between E*Trade and FNBO because I wasn’t sure if I wanted the stock purchase/brokerage options available. What the decision came down to is the fact that I’m not big on stocks. I’ve never had great investments in stocks and my 401k is already heavy in the market, so I’m going safe with FNBO online savings account at 2.80%. I’ve also received the best feedback on FNBO’s customer service, apparently they are the easiest to get a human on the line, old school maybe, but I still like that.