Creating a Holiday Budget
Pay off debt – Save money - Avoid Future Debt.
By Renauld Smith
Industry Veteran & Executive Director of IAPDA
According to the latest data from the National Retail Federation (NRF), American consumers spend an average of $997.73 on gifts and holiday items each Christmas. In comparison, 42% of Americans don't have the cash to cover an unplanned $1,000 expense, according to a recent Primerica report.
A holiday budget can help you avoid overspending and start the new year off on the right foot. It comes down to listing your expenses, determining how much you can afford to spend, preparing your finances and making changes as necessary.
Here's a simple checklist for creating a holiday budget that works for you.
Start Early
The first step is estimating what your total holiday spend will be. Looking at what you spent last year is a good place to start. Now look ahead and think about what your financial responsibilities will look like this year.
Like any financial goal the sooner you start saving, the better. After the holidays are behind you, add up what you spent in all and divide that number by 12. This can be a line item you add to your monthly budget going forward. If you set aside $100 a month, for example, you'll have $1,000 saved by the end of October.
Set a Spending Amount and Pay in Cash
If you struggle with overspending on your credit or debit cards, holiday shopping might be a good time to try paying for everything in cash. By paying in cash, you’ll be more aware of how much you’re spending on your purchases—and you’ll have a stricter method of making sure you don’t blow your budget.
Determine How Much You Can Spend
Once you have a total number in mind, you can build your holiday budget. Begin by looking at how much discretionary income you typically have each month.
When all your bills are paid and you've set aside money for your financial goals, roughly how much do you have left over? If things feel tight, see if there are any expenses you can trim, either temporarily or permanently. Some ideas include:
- Revising your budget to eliminate overspending
- Reviewing your subscriptions and memberships
- Meal planning and reducing takeout orders
- Lowering your utility bills.
- Refinancing debt
- Carpooling or using public transportation
- Negotiating lower credit card interest rates
List Your Expenses
Holiday expenses usually go beyond gift giving. Estimate how much you'll spend in each of the following categories:
- Gifts: This includes your family, friends, kids' teachers and holiday tips for service providers like babysitters or your mail carrier. Holiday donations go in this category as well.
- Decorations: No matter what you celebrate, you'll want to plan ahead for home décor. That might include lights, ornaments, a Christmas tree, lawn decorations and more.
- Holiday travel: Whether it's a holiday vacation or round-trip flights to your hometown, holiday travel can add up fast. If you're taking a road trip, don't forget to budget for gas.
- Food and entertaining: ‘Tis the season for holiday parties. If you're expecting to play host, you will need to think about food, drinks and if your guests will be chipping in for the festivities. If you plan on attending holiday parties this year, you might also be on the hook for secret Santa or white elephant gift exchanges.
- Unpaid time off: This is an especially important point for freelancers and self-employed folks. If the holiday season is normally a slow season, being prepared can help your budget.
Ways to Cut Corners for the Holiday Season
If your list of expenses seems a bit high or maybe completely out of control, you may want to consider allocating less to certain categories or removing some altogether. For example:
Instead of buying gifts for each one of your friends or family members, see if the group is open to doing a secret Santa exchange, now you’re only buying one gift.
Pare down your gift list, spend less on each gift or consider homemade gifts.
Buy in bulk or make gift baskets. For non-immediate family, there’s no need for unique gifts; either buy general, universal items that you can get cheaply at bulk discount stores or get drafty and make gift baskets filled with holiday items or baked goods.
Cut back on holiday travel. If you really want to visit family members, consider going at a different time of year when flights and other expenses may be cheaper.
Don’t buy gifts for yourself or your pets. If you want something for yourself, it should be on your list for someone else to buy it for you. People now waste up over $100 each Christmas self-gifting; also, don’t buy for your pets – they have no idea it’s a holiday, nor do they care.
If you've got an end-of-year work bonus coming your way, put it toward your holiday budget.
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