How To Make A Holiday Budget And Stick To It

No matter what holidays you celebrate, winter can be the season for going into debt. According to U.S. News & World Report, more than 40% of Americans expected to go into holiday debt in 2022.

But there’s good news for 2023: If you can set a solid holiday budget and stick to it, you can enjoy your winter fun while keeping your finances intact.

Make A Plan

Before the holidays get too close, think about your plans. Will you visit family members and friends – or will they come visit you? How far do you have to travel? Will you be responsible for the cooking and entertaining?

Frame this in the context of your financial situation. Think about your debts and whether you’re easily paying your recurring bills on time. Also, consider short- and long-term plans like getting a mortgage or buying a car.

Consider Last Year’s Spending

If you have records of your spending, check to see how much you spent last year at the holidays. Also, think about how last year’s spending impacted your personal finances. If it took you months to dig your way out of debt, you might consider spending less on holiday purchases this year.

Wondering how your spending measures up? Based on the findings of a survey conducted by Deloitte, Americans spent an average of $1,455 during the 2021 holiday season, and holiday spending in 2022 was expected to mirror this figure.

Arrange Your Expenses Into Categories

If you break your holiday spending into categories, you can start thinking about how much to allot to each one. Below are a few categories to use as a starting point.

Gifts

A typical winter season for many Americans includes holiday gifts – and there’s sometimes a lot of pressure to have a long gift list with just the right item for each person.

Make a list of who’s going to receive a gift from you. Consider a budget for each gift and be sure to include gift wrapping and shipping costs.

Travel And Lodging

Travel and lodging costs can go sky-high during the holidays. It’s best to book airfare early for better deals. Or consider staying with family to reduce your spending.

Planning to fill your luggage with gifts? Before boarding your flight, be sure to crunch the numbers to see how much you’ll pay in checked-bag fees.

Food

What’s a holiday get-together without plenty of food? Whether you’re enjoying a huge home-cooked dinner with loved ones or dining out, food costs can add up in a hurry.

If you’re hosting a big family gathering, plan your menu early and run the numbers to get an idea of how much it’ll cost to feed your guests.

Holiday Decorations

Whether you DIY your decorations or head to a big-box store, decor-related costs can add significantly to your holiday spending.

Donations

There’s more to holiday giving than just gifts: Donating to your favorite charity is a great way to share the spirit of the season. You may even get the benefit of some nice tax deductions.

If you already have a favorite charity, you might notice them sending end-of-the-year solicitations for money. This serves as a good reminder for you to send your donation in so it can qualify for the current tax year.

Entertainment

The holiday season is also the time for big movie openings, live theater, concerts and other events. Costs can add up quickly, especially once you include popcorn and soft drinks. Be sure to account for these outings when you put your budget together.

Winter Apparel

Holiday shopping isn’t just about picking gifts for others. You might want something fancy to wear to your company’s holiday party, or you might simply need a new jacket to keep warm. If you have children, it’s possible they’ve outgrown the clothes they wore last winter.

Miscellaneous Expenses

Some expenses might fall outside of the categories discussed above. For example, you might need some funds for tipping a restaurant server or having a housekeeping service spruce your house up for the holidays.

5 Ways To Afford Your Holiday Fun

From buying gifts within your budget to paying for all the food and festivities, covering the various costs that often come with the winter season can seem daunting. Here are some strategies that can help.

1.   Set Up A Holiday Savings Account

It may be hard to give much thought to December when springtime rolls around, but some forward-thinking can pad your budget by allowing you to collect some interest.

Specifically, a high-yield savings account might provide a slight budget boost, so that’s an option to consider. Avoid the temptation of sticking holiday money into an existing bank account, especially an emergency fund. That way, you’re using the funds as intended.  

Also, springtime is tax season. Socking away part of your tax refund for holiday purchases can be a good way to avoid being stretched too thin when the holidays arrive.

2.   Stick To Your Spending Limit

Once you’ve decided on a spending limit for the various spending categories, avoid overspending by being disciplined and staying under the limits you’ve set. It always helps to remember all of your monthly bills and how hard it can be to pay them if you engage in excessive holiday spending.

3.   Use A Cash-Back Credit Card – But Pay It Immediately

A cash-back credit card can help you recover a percentage of the money you spend on purchases. This amount can fluctuate, though, especially when credit card companies offer promotional amounts from certain retailers. Still, if you adhere to your spending limits, you might be pleasantly surprised when you pay your credit card bills.

Speaking of credit card bills, a cash-back credit card might not help as much if you choose not to pay your entire balance when it’s due. You don’t want the amount you pay in interest to exceed the cash you can get back on purchases.

4.   Hit The Holiday Sales

There’s no shortage of retailers vying for your business around the holidays. From Black Friday specials to Cyber Monday offerings, you can score some solid deals. If you’re planning far ahead, you might even take advantage of Labor Day sales.

5.   Track Your Spending

Between travel, food, gift-giving and all the other holiday expenses, it can be hard to keep track of everything. But carefully monitoring your spending is worth the effort if it means avoiding any surprises the next time you check your bank account balances.

In an effort to track your spending, you could make some spreadsheets or utilize budgeting tools such as the Rocket Money℠ app. A good app should let you see transactions as soon as they’re made.

By keeping your spending records handy, you’ll have a leg up when it comes time to set next year’s holiday budget.

Turn Holiday Shopping Into A Teaching Moment

If you have children, think about including them in the holiday budgeting process. This can be a great teaching moment where you can influence their ability to manage money. You might also motivate them to give money-saving DIY gifts or, if they’re old enough, take a job that will allow them to afford the items on their shopping list.

The Bottom Line: A Holiday Budget Can Help You Dodge Debt

If you approach holiday spending like any other major expenses, you can improve your odds of avoiding debt. By creating clear spending categories and looking for ways to save on every purchase, you’re more likely to emerge from the holidays without putting a huge hole in your wallet and damaging your personal finances.

Need help tracking your holiday spending and debts? Download the Rocket Money app and get better visibility into how much you spend and owe.