How to set a budget for holiday spending

Women happily holiday shopping and looking at a purse

You might have pumpkins on your porch, but it’s time to make room for the year-end holidays in your budget. The average American spends approximately $1,000 on Christmas, with 71% of budgets assigned to gift purchases. That’s a chunk of change, and overspending could impact your finances going into the new year. Here’s how you can set a budget for holiday spending and keep your finances in check.

Start planning early

The earlier you start saving for holiday shopping, the better. The holidays are stressful enough—and racking up credit card debt to pay for gifts is the last thing you need to worry about. Save yourself the headache and start saving as early as possible. Consider using a holiday savings account—funds are automatically transferred to your primary savings each year on November 1st, just in time to start making your list and checking it twice.

Work backward

Your past holiday spending is the best indicator of what you’ll spend this season. Look at your credit card statement from last year and determine what you spent on presents, travel to visit long-distance relatives, or other holiday-related spending.

Once you’ve estimated past expenditures, create a baseline for this year that includes what you can reasonably save over the next few months. Set a total and divide it by the number of people on your list, then prioritize. For example, if you plan to spend $1,500 and have 15 people on your list, you may want to spend more on some or less on others.

But, presents likely aren’t all you’ll buy. Account for decorations, travel, donations, and more. Don’t forget to build in a miscellaneous category, too. It’ll give you extra cushioning if a co-worker gives you an unexpected gift and you feel compelled to reciprocate. It’s always better to have some wiggle room—and whatever you don’t use can go back into your savings.

Look ahead

Setting a spending limit is just the beginning—budgeting requires discipline and regular check-ins. Set a weekly reminder on your phone to review how much you’ve spent thus far and how much you have left to spend. Overshot the budget on a gift? Make an adjustment to other gifts or expenses for the particular month.

Always keep your budget’s ultimate goal in mind. It might be focused on the months of November and December, but it will affect your finances well into the new year. If you blow your budget and don’t have additional funds set aside, what’s going to happen? You’ll be pulling out your credit card and racking up more debt.

That doesn’t mean you have to pay for your presents in cash, but you should have plenty of money to pay it off. If you pay with a credit card, use one that offers cash back or other rewards so you can at least gain something in return.

Shop around for deals

Browse the internet for gifts you need to find the best deal. An easy way to compare prices across multiple platforms is through Google Shopping. Simply search for the item you want, and Google Shopping will present listings. You can filter by price, brand, online or in-store availability, and more.

Shopping online is also a great budget-saving tool. Sure, you might be paying a little more for shipping in some cases. But, it’s easier to eliminate impulse purchases compared to shopping in-store.

Get creative

If your budget is being stretched thin, consider non-monetary or hand-made gifts this year. Could your parents’ yard use some TLC? Offer to mow their lawn for free. Do you have a grandparent whose recipes are scattered on notecards? Compile them into a book for easy access! Whatever it may be, gifts from the heart are always appreciated—and an easy way to save some cash.

While you’re thinking about all the gifts you’re going to give this year, plan ahead and budget as a gift to yourself. Setting a budget for holiday spending is a great way to avoid overspending and financial stress in the new year. By following the tips above, you can create a budget that works for you and your family and still enjoy the holiday season.

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