Savvy Splurging: Holiday Budgeting Tips
Planning ahead may make holiday shopping less stressful.
Shopping for gifts is one of the most exciting parts of the holiday season. When you find the right gifts, you can’t just pass them up, knowing the delight and joy your loved ones feel when they open them.
But if you’re not careful, it’s easy to overindulge on holiday shopping. In 2022, Americans collectively spent more than $936 billion during the holiday season!¹
Gifts aren’t the only expenses during the holiday season. Many people throw parties, travel, and even buy special clothes (hello New Year’s Eve) this time of year. Those expenses may be overlooked in planning, but you’ll certainly be reminded of them when it’s time to pay the bills.
Creating a holiday budget ahead of time may help you keep your spending on track and reduce stress once you start shopping. Not sure where to start? Take a look at our tips so you’re ready to hit the stores this season.
Building a holiday budget may help you be more intentional with your holiday spending.
Customize your budget to fit your needs and estimated holiday expenses.
Keeping holiday funds in a dedicated high-yield savings account may help you save money faster.
Benefits of Holiday Budgeting
Though creating a budget for the holidays is by no means required, it may make the season more enjoyable and help you be more intentional with your spending. Here are a few benefits you might experience when you use a budget for your holiday expenses.
Reduced Stress: Allocating funds for gifts, entertainment, food, and travel may reduce decision-making stress at the point of purchase. It may also help reduce stress after the holidays if you aren’t faced with an empty bank account!
Intentional Spending: Pre-planned spending may also allow you to be more mindful about what you’re buying and could reduce the number of impulse purchases you make.²
Less Risk of Debt: The average person takes on more than $1,500 in debt from holiday shopping.³ A good plan may help you avoid high rates and credit card debt, potentially impacting your finances long after the holiday season.
A holiday budget may help you start off 2024 strong—like you gave yourself the gift of better financial wellness !
How to Budget Ahead for the Holidays
If you already have a budgeting system that works for you, you could adapt it for the holidays. But if you don’t have one or haven’t had success with your holiday budgeting efforts before, try using these steps.
1. Break Spending into Categories
Before you determine how much money you want to spend, it may be useful to break your budget into categories to help give you a clearer picture of your spending. For example, you may want to budget for the following:
Miscellaneous (decorations, wrapping paper, etc.)
This is just a starting point. This is your plan – add other categories to customize it any way that works for you.
2. Pre-Planning and Listing
Creating a list for gift shopping helps you be more intentional with your holiday spending. It’s fun to be generous. But check yourself – do you really need to buy a gift for everyone? A list gives you an opportunity to think it through and prioritize.
If you often host a holiday meal or party, consider listing out the expenses associated with it to help you plan to set that money aside ahead of time.
3. Set Amounts for Each Category
Once you know how you want to break down your budget, set targets for each category based on how much you’re comfortable spending. Consider how much you’ve spent on holiday expenses in previous years if you’re not sure where to start.
For example, your budget targets may look something like this.
Travel - $1,000
Gifts - $1,500
Entertaining/meals - $2,000
Miscellaneous - $350
Your targets may be higher or lower depending on several factors, such as the number of people in your family or how many people you exchange gifts with.
Once you have these target amounts in mind, you’re ready to start saving.
4. Set up a Dedicated Savings Account
To prepare for holiday spending, you may find it beneficial to create a separate savings account for these savings.⁴ This may help you keep track of your progress and reduce the risk of dipping into these funds for other purposes.
When choosing a savings account, look for one that earns a competitive rate so your money grows over time. Also be on the lookout for any hidden fees or minimum balance requirements that could impact your balance.
Spending During the Holidays
Creating a plan for holiday spending is just the first step. Following through and keeping with the plan are also key. Here are some tips.
Stick to Your Shopping List: You’ve done the pre-work by making a list so don’t fall prey to the impulse purchase.
Track Your Spending: It’s tough to stay on track if you don’t know how much you’re spending. Keep a log of your purchases and compare what you’ve spent against how much you allocated.⁵
Shop Early: It’s normal for prices on in-demand gifts and products to go up throughout the holiday season. Start shopping early to take advantage of lower prices and potential deals (like Black Friday or Cyber Monday).
Compare Prices: Prices often vary by retailer, especially if you’re shopping online. Take some time to compare prices before making a purchase.
Use Credit Strategically: If you’re going to use a credit card to make purchases, consider using one that earns cash back or other rewards on what you charge. This may help you get a bit more bang for your buck. (Just be sure to plan for paying off the balance!)
Creating a holiday budget is a great way to help you be more intentional with your holiday spending. The sooner you start, the easier it may be to build your savings and set yourself up for a successful and less stressful holiday shopping season.