Are you ready to start thinking about holiday shopping? Sure, it might seem a little early. But when it comes to holiday budgeting, it can’t hurt to get a head start. Here are some quick holiday stats for you: according to Statista, the average amount spent on gifts in 2020 was $852. This number has been above $700 annually since 2010.
That only accounts for money spent on gifts, though. Many people also splurge on trappings and wrappings, feast foods and snacks, décor, clothing for events and other holiday goodies. All that lavish use of your wallet can result in overspending. It’s common during the holidays—in 2020, Americans who used credit to pay for the festivities ended up carrying over around $1,381 in debt on average.
Worried about going overboard this holiday season? There’s where a holiday budget will really come in handy. If you’re not sure where to start, we’ve got some tips to help you set up your budget for the holiday season this year.
Why Make a Holiday Budget?
It’s completely understandable to feel stressed during the holiday season. Between gifts, holiday parties, decorations and hosting, holiday expenses can add up fast. And if you’re not paying attention to your spending, or if you accidentally go overboard, your holiday bills can be a rude awakening by the end of the year.
While the COVID-19 pandemic might contribute to some holiday financial pressures in 2021, it’s pretty common for people to deal with financial stress during the season. Creating a budget and sticking to it could remove some of that stress. It provides a guide for how you can spend during the holidays so you don’t have to decide on splurges in the moment or try to keep track of everything in your head.
A holiday budget also helps stop you from spending here and there, which can add up before you know it. And that cuts down on surprise holiday debt. When you’ve already made a plan, you know you can’t make impulsive purchases during holiday sales or say yes to yet another seasonal outing.
Steps for Creating a Holiday Budget
When it comes down to it, a holiday budget is pretty similar to a regular monthly budget. Follow the steps below to get started:
1. Decide how much you can spend
Choose the total amount you can spend during the holidays. Be realistic about this amount and think of all the gifts and obligations you have to fulfill this year. How many gifts do you have to buy this year? Are you hosting any holiday parties? Are you traveling to visit family this year? Ultimately, it’s best to choose a holiday spending total that leaves you owing no debts on New Year’s Day.
2. Create a list of spending categories
The holidays look different for everybody, which means how you spend and what you spend on is unique to you. Not everyone spends to decorate their home, for example, and your list of seasonal events may look very different from your friends’ lists.
Because of that, decide what the categories for your holiday budget might be. Pick some of the ones below and add your own as needed.
- Gifts: Items you buy for others this season.
- Travel: Expenses such as fuel, food and flights for holiday travel.
- Décor: What you buy to decorate the inside or outside of your home.
- Entertaining: Food and other items you buy to host people at your home or hold parties or other events.
- Clothing: Special clothing or costumes required for holiday events.
- Food and drinks: Money to cover food and beverages you buy for holiday meals at home as well as dining out for the season.
- Charitable donations: Do you like to give back during the holiday season? Take that into account when making your budget.
3. Allocate your budget among the categories
Decide how much of your total budget should be allocated to each category. For example, if you want to spend $1,000 for the holidays and 50% of that on gifts, you have $500 for gifts.
Setting a specific dollar amount in each category is important. It lets you know what your limitations are so you know how much you can say yes to this season. If you have a budget of $100 for eating out, you probably can’t accept 10 invitations to holiday drinks or dinners.
4. Create a gift guide to dictate shopping
Further divide how you plan to spend your gift budget. Make a gift list of everyone you want to give a present to this season. Decide how much you can spend on each person. Then come up with a gift idea that fits that budget plus one or two backup plans. Having a detailed gift budget and guide helps you stick to the plan as you shop this season.
Tips for Sticking With and Maximizing Your Holiday Budget This Year
One of the reasons people end up overspending during the holidays is that they don’t know how to make their limited budget stretch. Check out the tips below for doing more with your holiday budget to avoid overspending.
1. Talk to friends and family about limiting gift giving
If necessary, tactfully talk with family and friends about cutting down on lavish gift exchanges. You might consider a Secret Santa exchange where everyone draws a name out of a hat and buys one gift for the person they pulled. This reduces how much everyone has to shop, while making sure that everyone still enjoys a fun surprise and people concentrate on quality over quantity.
2. Spend on experiences instead of things
Friend groups might decide to forgo gifts altogether in exchange for a fun seasonal experience together. Splurge on a holiday festival, get an Airbnb together for the night or just go out for a nice dinner. While you’re still spending a bit of money, it may be cheaper for everyone if they’re not shopping for multiple gifts. It’ll definitely help people save time and potential stress.
3. Make things yourself when possible
Making items to give as gifts has a number of benefits. Homemade items demonstrate your love for someone with action. And if you’re already a crafter or baker, you may have many of the things you need on-hand already, reducing the overall expense.
Do be careful that you’re not spending more on supplies to make an item than you would spend on a bought gift, though. Use coupons and craft store sales to reduce the cost of your handmade gifts.
4. Watch for the best deals, including free shipping
Shop sales and deals to save money and maximize your gift budget. And keep an eye on extra costs like shipping. Buying strategically to get free shipping can stretch your gift budget much further.
5. Cut down on unnecessary trappings
Fancy wrapping paper, ribbons and bows look gorgeous under your tree, but they can also add a lot to your gift budget. Instead of spending on items that’ll be torn and thrown away on the big day, be creative with wrapping. An inexpensive roll of parcel paper, pack of glitter markers and non-holiday craft ribbon bought on clearance can result in pretty packages too.
6. Use a rewards credit card to save while spending
Sure, over-using credit cards for holiday spending can result in debt. But that doesn’t mean you shouldn’t use credit cards during the holidays at all. If you have a rewards credit card, you can use it to maximize what you get from your holiday budget.
Rewards credit cards provide cash back or points you can exchange for rewards like airline tickets or hotel stays. By aligning your spending to maximize credit card rewards, you can get significantly more from your holiday budget. Just remember to keep the spending aligned with your budget and pay off the credit card balance immediately to avoid interest.
7. Stop spending when you’re finished with the list
These tips only work if you have the willpower to stop when you finish your list or spend everything in your budget. To help ensure you enjoy the holidays without overspending, find free events and things you can do for the season. Alternate them with shopping to stretch your holiday budget funds for weeks or even months.
Holiday Budgets are Here to Help
While we’re firm believers in holiday magic, even we know that even holiday magic can’t keep you from going into debt if you’re not careful. It takes planning ahead and dedication to your budget to be smart with finances during the season. Start now by applying for a rewards credit card. that can help you maximize what you get from your holiday spending this year.
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