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Nov 16, 2023

How to build a holiday budget and stick to it

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Wintertime brings a host of holidays and celebrations, with gift exchanges, holiday meals, and festive gatherings to mark the end of another year. But the merrymaking also comes with the reality of extra costs. In 2023, average holiday spending is estimated to be $1,530 per household for gifts, travel, and entertainment. Without a budget for these expenses, the holiday season can put a strain on your finances, and even lead you into credit card debt. But with a bit of careful planning for holiday expenses, you can craft a holiday budget that ensures you savor the season’s delights without stressing over money.

In this article, we’ll cover:

Benefits of holiday budgeting

No matter what traditions you observe, extra expenses can quickly mount during the holiday season. Creating a budget can help ensure you have money to spend on festivities, start the new year in a solid financial position, and keep stress from souring your celebrations. 

  • Ensure your expenses are covered: A holiday budget safeguards the money you need for your regular living expenses and bills, preventing you from unintentionally spending it on holiday extras. 
  • Protect your savings and investments: By allocating funds specifically for holiday spending, you can avoid the temptation to dip into your savings or disrupt your investment plans. 
  • Avoid going into credit card debt: With a budget, you’re less likely to rely on credit cards which can leave you with high-interest debt lingering long after the holiday season ends.
  • Reduce stress: Knowing you have a plan for your holiday spending can lift a weight off your shoulders. A budget removes the guesswork and lets you enjoy the holidays without the nagging worry of overspending.

How to make a holiday budget in 3 steps

The goal of a holiday budget is to allocate a percentage of your income and savings to holiday spending while maintaining enough money for your other financial commitments. If you already have a budget, now’s the time to work holiday expenses into your plans. Be sure to integrate specific line items for things like gifts, travel, and entertainment into your existing budget. 

And if you haven’t yet established a monthly budget, the holidays are an opportune time to start. Making a holiday budget may help you start a long-term budgeting habit. 

1. Define your holiday spending categories

The holidays can bring a wide array of expenses unique to each person’s traditions; without a detailed plan, it’s all too easy to overlook certain costs. To know exactly what you should budget for your holidays, first, determine what your typical holiday spending looks like based on previous years. Then think about what you’re planning to do this year and make a list of all your anticipated expenses.   

A reasonable budget for the holidays depends on the traditions you observe and what’s important to you. Consider planning for these common seasonal purchases:

  • Holiday gifts: Think of everyone on your gift list, as well as presents you’ll buy for things like office gift exchanges or Secret Santa gifts if you celebrate Christmas.
  • Greeting cards: Be sure to consider the cost of both cards and postage if you’re mailing holiday greetings.
  • Dining and groceries: Include the costs of dining out as well as money for extra groceries if you’re hosting gatherings. 
  • Entertainment and activities: Check the cost of tickets and entry fees for the events you plan to attend this season. 
  • Decorations and attire: Remember to include expenses for replacing worn-out decorations, as well as special clothing you may need for a holiday party.
  • Holiday travel: If travel is on your agenda, plan for the cost of tickets and accommodations, and remember additional expenses like travel insurance and pet care while you’re away.
  • Charitable donations and tips: Giving back is an important part of the holiday spirit for many people, so budget for donations you want to make and tips for service workers. 

2. Fund your holiday budget

Once you’ve identified the various expenses that the holiday season entails, the next step is to determine how much you’ll need for each and ensure you have the funds set aside. 

  • Determine spending limits for each category: Look back at last year’s spending to help gauge what you might need this year. This historical insight can serve as a baseline for setting spending limits for each category of your holiday budget.
  • Reduce your expenses: To free up funds for your holiday spending, look for ways to save money on other expenses. You might want to make temporary sacrifices in some areas to make room for holiday purchases. 
  • Tap into extra money: If you receive any extra income during the holiday season, such as a bonus from work, you could use it to bolster your holiday budget. You may also want to look for additional sources of money, like old gift cards that still have a balance or picking up a short-term side gig
  • Take unpaid time off into account:  If you’ll be taking unpaid vacation time for holiday travel or observance of special days, remember to factor the reduction in income into your budget. 

3. Track and control your spending

Amidst the bustle of holiday shopping, it can be easy to lose track of your planned spending limits. By tracking your spending meticulously, you can be sure you don’t blow your holiday budget.  

  • Consider a budgeting app: A budgeting app can give you real-time insight into how much you’re spending by automatically tracking every transaction. This constant monitoring can alert you to issues so you can adjust your spending habits before they become a concern.
  • Try a mini envelope budget: Envelope budgeting involves allocating cash into different envelopes for each spending category. By using this approach for your holiday expenses, you can physically see what you have left to spend, which can be a powerful deterrent from going over budget.
  • Use your debit card, not your credit card: While it’s tempting to defer the cost of your holiday expenses by putting them on your credit card, relying only on your debit card can help you ensure you’re only spending money you have in the bank. If you can find a debit card that offers rewards, all the better.
  • Remember the reason for the season: It’s easy to get caught up in the thrill of holiday spending and forget the reason you’re celebrating in the first place. Before you decide on a purchase, reflect on whether it adds meaning and joy to your personal experience of the holidays.  

Don’t let debt put a damper on your holidays

If you defer paying for your holiday expenses, the joy of the season can turn into the stress of lingering debt when the new year dawns. By planning and spending within your means, you can create lasting memories without the worry of paying off debt once the holiday lights dim.

Avoid credit card debt

Credit card debt can be particularly insidious during the holiday season. It’s easy to swipe now and worry later, but this can lead to a significant financial hangover. In 2022, 35% of U.S. consumers found themselves saddled with debt from holiday spending. Credit card debt in particular often carries high interest rates, which can quickly compound, making it harder to pay off in the long run. 

Beware of buy now, pay later offers

Buy now, pay later (BNPL) offers might seem convenient to spread out holiday expenses, but they come with caveats. These plans allow you to purchase items immediately by paying for just a portion of the cost and then paying off the rest in installments. While this can make large purchases seem more manageable, it can also lead to spending beyond your means. If you’re not careful, BNPL plans can accrue interest or fees, and missed payments may impact your credit score. It’s crucial to fully understand the terms and consider whether the long-term costs are worth the short-term convenience.

Tips for saving on holiday expenses

The holiday season doesn’t have to be synonymous with extravagant spending. With a few smart strategies, you can trim your holiday expenses without diminishing the sparkle of your celebrations.

How to save on holiday gifts

  • Arrange a gift exchange: Organize a gift exchange among your family or friend group where every individual draws a name. This way, everyone receives something special, and each person only needs to purchase one gift, keeping expenses down. 
  • Set spending limits: If you’re exchanging gifts with someone, agree on a spending cap that works for your holiday budget. This way, no one feels pressured to overspend, and everyone can enjoy the spirit of giving without financial stress.
  • Give as a group: If you want to present someone with a high-cost gift, consider pooling resources. For example, joining forces with siblings or cousins to buy a collective gift for a parent or grandparent allows for a more substantial present without the full burden falling on one person.
  • DIY your gifts: Handmade presents are not only personal and thoughtful, but may also be kinder to your wallet. Crafting or baking homemade gifts can also be a fun event to enjoy with family or friends, adding a low-cost activity to your holiday season.

How to save on other holiday expenses

  • Go the potluck route: If you’re hosting a holiday gathering, consider making it a potluck. With each guest contributing a dish, you save money on groceries and add variety to the feast.
  • Find free fun: Look for no-cost holiday activities in your community. Free events like tree-lighting ceremonies, holiday markets, and winter festivals can create cherished memories without expensive tickets or entry fees.
  • Take inventory of what you have: Before rushing out to buy new decorations or holiday attire, scour your home storage for forgotten holiday treasures. Reusing and repurposing decorations and clothing can save you money while being environmentally conscious too.
  • Make your own decorations: Gifts aren’t the only holiday cost that can benefit from a DIY mindset. Find free online tutorials for crafting holiday decor to adorn your home; just be careful not to overspend on supplies. Plus, a decoration-making party can be an inexpensive holiday activity, and could even become a treasured tradition.
  • Trim travel expenses: What you should budget for a holiday vacation depends on multiple factors, but how you get there and where you stay are often the two biggest expenses. If you’re flying, research the travel dates with the lowest costs; if you’re driving, maximize fuel efficiency. To travel cheaply, you might also consider staying with family or going in with others on a short-term rental instead of shelling out for a hotel. If you do opt for a hotel, remember to include the cost of lodging tax in your budget.     

How to save on holiday shopping

November and December are the biggest months of the year for retail businesses. Alluring sales and an onslaught of ads can easily send you into a holiday shopping frenzy that undermines your budget. To avoid being swept up in the fray, go into your shopping excursions with thoughtful strategies to bolster your self-control.

  • Avoid impulse buys: Don’t let sales and flashy marketing tempt you into an unplanned spending spree. Remember, retailers are great at creating a sense of urgency for holiday shoppers. Before you head to the store or browse online, make a list, check it twice, and have a plan for sticking to your budget for each item in order to stop impulse buying.
  • Be prudent with promos:  Promotional emails and texts can alert you to genuine savings, but they might also entice you to buy things you don’t need. If you find that these messages trigger unnecessary spending, consider unsubscribing during the holiday season.
  • Treat yourself sparingly: It’s easy to be drawn to items for yourself while shopping for others. Bookmark the things you’re interested in and revisit them after the holidays so you can use gift cards or take advantage of post-holiday sales.
  • Watch out for Black Friday and Cyber Monday mania: The days after Thanksgiving have become holidays in and of themselves as stores kick off the holiday shopping season with the promise of huge savings on hot items. While you can find significant discounts, not all deals are as good as they seem, and it’s easy to buy more than you’ve budgeted for in the face of the hubbub. To save money on Black Friday and Cyber Monday, plan your purchases ahead of time, compare prices, and stay focused on the items on your list instead of impulse purchases.  

How to save up for holiday expenses

Setting aside money in advance of the holiday season can alleviate the financial pressure of end-of-year expenses. By saving up for the holidays throughout the year, you’re less likely to feel the pinch when the festive months roll around.

  • Start saving early: Start saving up for holiday expenses long before the season starts. A budgeting framework like the 50/30/20 rule can guide you on how much of your paycheck you should regularly put into savings throughout the year. 
  • Create a holiday sinking fund: A sinking fund is a dedicated savings pot for a specific goal. Building up a sinking fund specifically for your holiday budget can help you spread the cost of holiday expenses over time, making them more manageable when the season starts.
  • Do your holiday shopping all year long: If you identify your holiday expenses early, you can spread your spending out over time. That way you can take advantage of a great deal on a perfect present to stow away for gift-giving time or shop post-holiday sales for discounts on things you’ll want for the following year.     
  • Grow your money in an interest-bearing account: Placing your holiday savings in an account that earns interest, such as a money market or high-yield savings account, allows your money to grow through the year. Compounding interest can add a little extra to fund your holiday budget. 

Think beyond your holiday budget

Adhering to a holiday budget is more than just a seasonal discipline; it’s a practice that safeguards your financial health well into the future. When it comes to good money management, planning ahead is key. While you build your holiday budget, consider mapping out January’s expenses as well to give you perspective on the impact your holiday season financial decisions will have on your longer-term savings and investment objectives. With a well-managed holiday budget, you can ensure that the joy of the season transitions seamlessly into a prosperous new year.

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Written by

Tara Blaine

Tara Blaine draws on over 20 years of experience as a writer to translate seemingly complex financial ideas into insights readers can put to work in their everyday lives. She’s written personal finance education materials for numerous institutions, helping customers learn smart techniques for budgeting, overcoming debt, saving money, and planning for their long-term financial health.


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