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How to Create a Holiday Budget and Stick to It

The silver bells of the holiday season can certainly take their toll on your wallet. In a November 2019 Gallup poll, Americans said they expected to spend an average of $942 on holiday gifts. A record-breaking 37% of respondents said they would spend $1,000 or more.

And the spending doesn’t stop with gifts. The holidays come with a host of other expenses, including food, entertaining, decorations, holiday travel, cards, and charitable giving. Add it all up, and you could easily spend thousands of dollars on your holiday cheer – and start the new year with crushing credit card debt.

If you’re hoping to avoid a New Year’s Day debt hangover this year, your best strategy is to make and stick to a holiday budget. Careful planning is the key to enjoying your holiday revelry without waking up to a cold, gray, overdrawn morning in January.

Creating a Holiday Budget

The process of making a holiday budget is much the same as creating a household budget. Figure out how much you have to spend, then work out how to divide up that money among all the things you want to buy. If the amount you have and the amount you expect to spend don’t match up, keep fiddling with the numbers until they do. You can do all this on paper or use a spreadsheet or budgeting app like Tiller or Personal Capital to help with the math.

The best time to do this is early on, before the holiday season hits full steam. Go into the season with your budget all laid out so you know exactly how much you can afford to spend for everything on your list. Then, as you shop, refer to your budget often to make sure you’re staying within its limits.

Step 1: Set a Spending Limit

The first step in setting up your holiday budget is to figure out how much you can afford to spend in total. Ideally, this amount should come entirely out of your available cash and savings so you don’t have to rely on debt at all.

First, look at all the money you’ve already set aside expressly for holiday expenses. Perhaps you’ve been stashing away a little money each month in a Christmas club account at your bank or saving change in a jar all year long in anticipation of the holidays. If you had the foresight to start planning early, you could already have a comfortable nest egg built up by the time you’re ready to start making your gift list.

If you don’t have any dedicated holiday savings, consider what other sources of money you have to draw on. Include things like your year-end bonus from your job or money in your savings account that isn’t earmarked for other financial goals. Also, think about how much money you can squeeze out of this month’s household budget after paying all your regular expenses.

Add it all up, and the total is the amount you have to spend on Christmas, Hanukkah, Kwanzaa, or whatever winter holidays you celebrate. Now, your challenge is to fit all your spending within that limit.

Step 2: List Expenses

Once you know how much you have to spend, the next step is to figure out what you need to spend it on. Write out a list of everything you’re likely to buy, including:

  • Gifts. List all the people you plan to give presents to this year. In addition to large gifts for friends and family, include all the small gifts you need to buy for social events, such as host and hostess gifts or a secret Santa gift exchange at work. Don’t forget small items like stocking stuffers. If possible, make room in your budget for a couple of extra all-purpose gifts. These come in handy if you receive a last-minute gift from someone who wasn’t on your list or you suddenly remember someone you forgot to include.
  • Wrapping Paper and Trimming. Presumably, you’ll be wrapping most of your gifts before handing them over, so budget for gift wrap and trimming like ribbon and bows. Using creative ideas for gift wrapping like magazine pages, old maps, or reusable gift bags helps keep this cost down.
  • Cards and Postage. If you send out holiday cards, photos, letters, or calendars, include a line in your budget for the cost of either buying or printing them, as well as the cost of postage. This category also covers the cost of shipping any gifts that have to reach the recipients by mail.
  • Food. This category includes food and drinks for your family dinner, any holiday parties you’re throwing, and your contribution to any potlucks you plan to attend. If you’re giving people cookies or other holiday treats, add them to this category as well.
  • Decorations. Add a line to your list for any holiday decorations you plan to buy. That includes such items as a Christmas tree, outdoor and indoor lights you need to replace, and Hanukkah or Kwanzaa candles.
  • Clothing. In most cases, you can dress for a holiday party in clothes you already own. However, if you need anything special you don’t have, such as an ugly sweater for a themed party, that’s another item to add to your list.
  • Travel Expenses. If you’re going somewhere for the holidays, travel costs are another significant expense you need to budget for. If you’re driving, this category includes gas and tolls. If you’re flying, it includes the cost of tickets, baggage fees, and parking at the airport or taking a shuttle. And if you have pets, you need to budget for boarding them or hiring a pet sitter (we love Rover.com) while you’re gone.
  • Holiday Activities. Many holiday activities, such as going to church or watching holiday movies on TV, don’t cost anything. However, if you have any holiday traditions that come with a price tag – such as photos with Santa, sleigh rides, or Chinese food and a movie on Christmas Day – those need a spot in your budget.
  • Charitable Giving. For many people, the holidays are a time to give money to worthy causes. Of course, you can give to charity any time of year, and if you do, you probably already account for this expense in your household budget. But if it’s part of the holidays for you, it also needs to be part of your holiday budget.

After you’ve made your list, check it twice to make sure there are no expenses you’ve overlooked. If possible, add a line to your budget marked “other” to cover any unexpected costs that pop up during the holiday season.

Step 3: Set Priorities

Don’t panic if your list of holiday expenses seems a little long. If there’s no way you can afford to cover every single item with the amount you have to work with, that just means you need to set some priorities.

Go through your list and number the items based on how important they are to you. Assign the number “1” to your top priority, number “2” to the next-highest priority, and so on. Then reorganize your list to put the highest-priority items at the top. These items should be the first ones you fund when you start divvying up your holiday budget.

For example, suppose you decide that giving gifts is your top priority, while new holiday clothes for yourself are a low priority. That means that as you work out your budget, you want to allot more dollars for gifts than for clothes. If necessary, you can even cut out clothing from your budget entirely to make sure you have enough money for gifts.

Step 4: Allocate Funds

Now it’s time for the nuts and bolts of budgeting: figuring out how much money to put toward each item on your list. Examine your list once more to estimate how much you plan to spend on each item.

Try to keep your numbers realistic. For instance, if you have 30 people on your gift list, it’s not really reasonable to assume you can buy presents for all of them on a budget of $100.

On the other hand, don’t go overboard and be too generous with your estimates, either. If you need one new sweater for a party, there’s no need to assign a budget of $150 to it. Looking at your bills and receipts from last year can help you get a realistic idea of how much each item will cost.

Step 5: Adjust the Numbers

When you add up all the amounts you’ve allotted for all the items on your list, there’s a chance the total will come to more than the spending limit you set back in step 1. If that happens, tinker with the numbers to get your budget to balance.

One way to do this is to make cuts in the areas that aren’t top priorities for you. For example, suppose you’re over budget by $150. Looking over your budget, you see you’ve allotted $200 to throw a holiday cocktail party for all your friends and neighbors. If you scale that back to a smaller afternoon party with punch and cookies, you could probably do it on a budget of just $50. That would free up the $150 you need without requiring any cuts to higher-priority items like gifts or travel costs.

If you’ve cut everything you can think of and you still can’t make your numbers work, try thinking of ways to boost your total spending limit. For example, you could:

  • Sell Unwanted Stuff. You can give your holiday savings a boost – and free up space in your home at the same time – by selling off some unwanted goods for cash. Things like tools, clothes, collectibles, electronics, jewelry, and home goods can fetch a good price on Decluttr, Craigslist. High-quality clothes can also go to a consignment store that will pay you a portion of their sale price.
  • Give Up an Indulgence. Another way to raise extra cash is to cut out little treats you enjoy at other times of year, such as a daily latte or a weekly trip to the movies. Individual drinks or movies don’t cost that much. But after a full month, the savings adds up. Try making your coffee at home, renting your movies online, or cooking at home instead of dining out.
  • Take a Holiday Job. If you can’t save the money you need for the holidays, earn it instead with a short-term holiday job. During the busy holiday season, there’s an extra demand for retail salespeople, warehouse workers, and delivery people. You could even get a gig as Santa Claus or one of his elves at a department store. You could also earn money by sharing your car on Turo.

Step 6: Keep Track

Getting your budget down on paper doesn’t mean your job is over. You still need to keep track of your spending as you shop to make sure you stay within its limits. By keeping a running tally of how much you’ve spent in each category and how much you still have left to spend, you won’t risk blowing through your entire budget in one shopping trip like Wile E. Coyote running blindly off the edge of a cliff.

Setting up a separate bank account specifically for holiday spending can help you stay within your overall budget. An online bank account through Chime can make setting everything up quick and easy. Take the total sum you’ve set as your spending limit, put it into this account, and then draw money from that for all your holiday shopping. If you have a mobile banking app on your phone, you can easily check it at any time – even as you wait in line for the cashier – to see how much you have left.

There are also several tools to help you keep track of your spending within specific budget categories. One of the simplest is an old-fashioned envelope system, in which you create a physical envelope for each category – like gifts and decorations – and load it up with the appropriate amount of cash. Each time you make a purchase within this category, pull the money out of the envelope. You can physically see and feel how much you have left, so you’ll know when you’re in danger of running out.

However, an envelope system requires you to do all your spending in cash, which doesn’t work for online shopping. A more modern alternative is to carry a wallet full of reloadable prepaid cards, one for each category in your budget. Just make sure you check the balance on each card regularly to see how much is left. Other ways to keep track of your spending include spreadsheets, budgeting apps, and virtual envelope systems like Mvelopes.


How to Stay Within Your Budget

Shopping List Calculate Budget Holiday Gifts Presents

Making a holiday budget isn’t that hard, but sticking to it is another matter. When you have a long list of gifts to buy and events to attend on a small budget, it often seems impossible to keep your holiday spending within the limits you’ve set for yourself. Next thing you know, you’re giving up in frustration and pulling out the credit cards.

To avoid this pitfall, you need to stretch your dollars. With a few adjustments in the way you plan for, shop for, and celebrate the holidays, you can save on just about everything on your holiday list, from gifts to entertainment.

1. Adjust Expectations

One way to save on holiday gifts is to rein in expectations – both your own and other people’s – about how many presents you need to give and how big they need to be. The easiest way to do this is to talk openly with family, friends, and co-workers before you start your shopping. Explain that you’re on a tight budget and you need to give fewer presents or smaller presents than you have in the past.

Many people feel awkward having this conversation, but there’s a good chance many of your friends and family members will welcome it. If they’re worried about holiday spending too, they’ll be glad to have an opportunity to dial down their own gift-giving.

Together, you can work out a plan for giving on a smaller scale in a way that satisfies everyone. Some possibilities include:

  • Give Cards or Cookies. For the more distant relatives and friends on your list, you can agree to exchange only cards instead of holiday gifts. Alternatively, you could give each other homemade cookies or other treats instead of purchasing presents. These options also work well for co-workers, neighbors, or your kids’ teachers.
  • Have a Secret Santa Party. Instead of giving gifts to everyone, put all your names into a hat and have each person draw one. Then, instead of shopping for dozens of gifts, you can devote all your time and money to being a “secret Santa” to just one person.
  • Give to Charity, Not Each Other. Instead of spending money on gifts for each other, pool all your funds and redirect them to charity. You can make one large donation to a charity you all like or each choose one charity and divide your money equally among them.
  • Give Token Presents. If you don’t like the idea of giving up family gifts entirely, agree to exchange only stocking stuffers or other token presents. If you’re not sure what counts as a token gift, set a price limit and challenge each other to keep all your gifts below that dollar amount. You can also agree to give big gifts only to the kids in your family and exchange token presents with adults.

2. Shop Smart

If you can’t pare down your gift list, make your dollars go further by shopping strategically. For example, you can:

  • Shop Early. By spreading your holiday shopping throughout the year instead of waiting for Black Friday or Cyber Monday, you can take advantage of sales on specific items at other times of year. You also run less risk of getting carried away in the atmosphere of the holiday season, when sights, sounds, and smells all conspire to make you spend freely. If you’re traveling over the holidays, shopping early gives you more opportunities to find lower airfares.
  • Shop Online. There are many advantages to doing at least part of your holiday shopping online. Aside from the convenience, it’s easier to compare prices and apply coupon codes to save money. You can also shop through Ibotta or Rakuten to save even more. Plus, you avoid the hectic holiday atmosphere at the store, you’re less likely to go overboard with spending.
  • Shop Secondhand. Many types of gifts – such as books, CDs, collectibles, and jewelry – are much cheaper if you buy them secondhand. Shopping this way is also an eco-friendly gift-giving choice, and it allows you to give rare items that are no longer available new. Just make sure any presents you buy used are in good condition and are going to people who don’t consider this type of gift tacky.
  • Use Savings Apps. Shopping apps like ShopSavvy make comparison shopping much more manageable. Instead of running around from store to store to check prices, you scan an item into the app and instantly see its price at nearby stores and on websites. For online shopping, use browser extensions to help you compare prices and find available coupon codes.
  • Be Careful With Sales. Although there are many excellent deals on Black Friday and Cyber Monday, other deals aren’t as good as they seem. Before adding an item to your real or virtual cart, use your handy shopping app to check its price elsewhere. And no matter how good the discounts are, don’t go overboard and buy things that aren’t on your list, or you’ll blow your budget in no time.
  • Use the Right Card. When you hand over your credit card to the cashier, make sure it’s the cash-back credit card or rewards credit card that gives you the best perks for holiday shopping at that particular store. For instance, at Target, your Target RedCard nets you an immediate 5% discount on everything you buy, plus free shipping if you shop online. For food, choose a card like Capital One Savor, which gives you 2% cash back at all grocery stores. However, don’t charge more on any credit card than you can afford to pay off at the end of the month.
  • Use Cash When You Can. If you have a hard time restraining your spending, consider using cash for all your in-store purchases. With a limited amount of cash in your wallet, it’s impossible to overspend. If you don’t like carrying around that much cash, gift cards or reloadable prepaid cards also help keep your spending in check.
  • Go Easy on the Extras. When you visit the mall, it’s easy to yield to the temptation of a little something extra, such as a photo with Santa, a peppermint latte, or a little present for yourself. Buy too many of these extras, and you can run through your whole holiday budget without having any idea where your money went. If giving up these little treats completely sucks all the joy out of holiday shopping for you, include a line in your budget for them, and keep your spending within that limit.
  • Know When to Stop. Once you’ve completed your list, it’s time to stop shopping. Resist the urge to stop by the mall when your shopping is finished “just to see what they have,” or you could come home with more than you budgeted for.

3. Do It Yourself

The items on your holiday list don’t always have to come from a store. In many cases, you can save by making them yourself. Festive things you can DIY for the holidays include:

  • Decoration. You can dress your home for the holidays cheaply with homemade decorations. Or you can create displays of found items like pinecones or fresh fruit, make a collage of family photos, or cut snowflakes out of paper and dust them with glitter. Christmas tree vendors are often willing to give you their extra trimmed-off branches for nothing or sell you a big bunch for a dollar or two – use them to make your own garlands and centerpieces.
  • Holiday Greetings. Instead of sending out store-bought greeting cards to everyone on your list, make your own. Go to The Spruce Crafts to download an assortment of free card templates to print at home. Or try something really radical and send each friend an actual handwritten letter in place of a card.
  • Edible Gifts. Instead of buying your mom a box of chocolates from a fancy store, why not make her some? A quick search online turns up recipes for lots of easy-to-make chocolate treats, such as peppermint bark, mocha truffles, and countless varieties of fudge. Or for a healthier edible gift, give an arrangement of fruit skewers or a jar of homemade pickles.
  • Bath and Beauty Gifts. There are lots of online recipes for luxurious bath and beauty products made from simple, natural ingredients. Check out Boulder Locavore for a roundup of homemade face and body scrubs, facial cleansers, bath soaks, body butter, and lip gloss.
  • The Gift of Your Time. We all have at least one person on our gift list who doesn’t need more stuff but does need more time. Make homemade coupons for a service like babysitting, cleaning out the basement, a home-cooked meal, or a massage. When you give this gift, schedule your service right away to make sure you don’t both forget about it. Or take your friend out for a special experience together, such as a fishing trip or museum visit.

These ideas are only the tip of the iceberg when it comes to homemade gifts. If you have a hobby like knitting, quilting, or woodworking, put it to good use making beautiful handmade gifts for your friends and relatives. When you put real effort into making a gift specifically for someone, it’s much more personal and moving than something you just picked up off a store shelf.

However, it’s essential to know your own limits. If you’re just getting started as a knitter or woodworker, it’s probably not a good idea to make gifts of your first few clumsy projects. Wait until you have enough skill to give presents that really show how much work went into them.

4. Embrace Potluck

Hiring a caterer for a holiday party is expensive, and making all the food yourself adds up to a lot of work and stress. The perfect solution is to make your event a potluck. When each person brings one dish, everyone gets to sample a wide variety of foods, and no one has to assume more than a small share of the work and the cost.

One hazard of a potluck party is that if every guest decides what to bring, you could end up with a whole tableful of cookies and no main dishes. Avoid this problem by assigning each guest a particular type of dish while leaving them free to choose the exact recipe. For instance, you could request main dishes from 25% of your guests, appetizers from another 25%, side dishes from another 25%, and desserts from the rest.

Alternatively, make a list of what you need – so many main dishes, so many sides, so many desserts. If you need options for guests with particular dietary needs, such as gluten-free or vegetarian, include those on the list. Show this list to each guest and ask them what they’d like to bring, crossing off each item as someone takes it. Then, if you already have all you need of one category, such as desserts, you can tell other guests you only need main dishes or sides.

To make your potluck party a success, set up a buffet table with plenty of room for everyone’s contributions. Arrange it with similar types of food grouped together – salads, casseroles, desserts, and so on. Make sure to provide any serving utensils your guests didn’t bring for their own dishes, such as tongs for salad or a knife to slice cake.

Put out a stack of dishes, cups, napkins, and utensils at one end of the table. If you’re using disposable dishes, provide a marker so people can write their names on their cups and the bottom of their plates. That way, when they go back for a refill, they won’t have to take a new cup because they forgot which one is theirs.

Don’t feel guilty about asking your guests to share the burden of your party cooking with you. After all, the main point of a holiday party isn’t the food or the drink. It’s the time you spend together. Participating in the cooking as a group is a natural extension of that. In fact, your guests will probably be grateful they don’t owe you a return invitation. When everyone shares the cooking duties, there are no social obligations afterward.

5. Create Some Cheaper Traditions

For most people, the most special thing about the holidays isn’t the gifts. It’s the unique holiday traditions you share year after year with the people you care about. However, some of these traditions are expensive. A trip to Disneyland, a family outing to the movies, or throwing an elaborate party for dozens of people can eat up a major share of your holiday budget.

To enjoy the holidays more while spending less, focus on traditions that cost little or no money. You can create great memories with inexpensive holiday activities like:

  • Taking a tour of your neighborhood to look at Christmas lights
  • Watching a movie at home with some hot chocolate
  • Sledding
  • Seeing Santa at the mall
  • Doing crafts together
  • Decorating the house together
  • Baking together as a family
  • Reading favorite holiday stories
  • Seeing a high school production, such as a play or choir performance
  • Caroling
  • Eating breakfast together in your pajamas
  • Lighting Hanukkah candles
  • Playing games like Scrabble, charades, or Apples to Apples
  • Volunteering at a local charity like a soup kitchen or animal shelter

Final Word

Once the holidays are over, recheck your budget and see how well you managed to stick to it. If you stayed within your limits in every category, congratulations – you’ve figured out just what works for you. If you went over budget in some categories but stayed within your total spending limit, that’s a sign you need to tweak your budget next year, allocating more money to those particular categories.

If you blew your budget completely, there are two things you need to do. First, choose a credit card payoff strategy to get rid of this year’s holiday debt. Second, start making a plan to stay within budget next year, either by cutting back or by saving up more money ahead of the holidays.

There are several ways to get a head start on next year’s holiday season. For instance, you can start saving all your loose change in a jar and depositing the contents each month in your dedicated holiday account. You can also adjust your household spending to set aside a little money out of each month’s budget for next year’s holidays or do a financial fast and squirrel away the money you save. By getting started early, you can give yourself a lavish budget to work with next time the holidays roll around.

Do you have a holiday budget? What other strategies do you use to save money during the holiday season?

Amy Livingston
Amy Livingston is a freelance writer who can actually answer yes to the question, "And from that you make a living?" She has written about personal finance and shopping strategies for a variety of publications, including ConsumerSearch.com, ShopSmart.com, and the Dollar Stretcher newsletter. She also maintains a personal blog, Ecofrugal Living, on ways to save money and live green at the same time.

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