How to Budget for Holiday Spending

November 15, 2022 | Lois Sullivan

The holiday season is a time that many people look forward to each year. But if you're not careful, your spending may get a little out of control as you shop for gifts for everyone on your list. The best way to avoid overspending is to create a list of whom you plan to buy gifts for and establish what you want to spend on each. Read on to discover how to budget for holiday spending and keep your finances in check.

Make a list

The first step in budgeting for holiday spending is making a list. This should include everyone you'll be purchasing a gift for this year, whether it's something small or more pricey. Think about all the people you gave gifts to during the previous holiday season and determine whether they'll be on this year's list.

Consider expenses outside of gifts

In addition to the cost of presents you'll purchase for loved ones, you may have other expenses during the holidays. Many people travel to visit their family or friends, which comes with a cost. Consider what you might spend on a plane ticket or fuel for your car, lodging and other travel-related expenses. Add those to your list as you determine what extra costs will come your way during the holidays.

You might also consider budgeting to make charitable donations during the season of sharing and giving. Some people purchase gifts for the less fortunate, while others simply make monetary donations to organizations that give back to their communities. If this is a priority for you, consider how you want to give back and whether you'll give to multiple organizations.

Review your finances

The next step in creating a holiday spending budget is reviewing your finances. It's important to know how much you have coming in, and in what areas you'll be spending, before you can make a budget for extras. Look at your existing budget to assess how much you need to spend on housing, food, utilities and other necessary costs. You might need to dip into a savings account to cover the added holiday expenses. But if you don't have extra to spare, you could trim your budget in other areas to make up the difference.

Establish a budget for each holiday category

When you have an idea of what money you have available for holiday spending, you can establish a budget for each category. You might have one bucket for gifts, another for travel expenses, and a third for charitable giving. Make sure to set clear spending limits so you don't go overboard as you go out shopping. If you have trouble sticking to a budget, consider using a cash-only system when purchasing gifts. Putting presents on a credit card can tempt you to spend too much, but with high interest rates, your budget could easily double when the bill comes due.

Some people establish spending limits with those they plan to exchange gifts with, helping to put everyone on the same page. If you're participating in a holiday gift exchange, it makes sense to set a limit so all participants receive a present that's similar in value. A spending limit can also help friends and family members stay within their means when shopping for one another.

Track your holiday purchases

As you start shopping for gifts, it's important to keep track of what you spend. Keep a digital copy of your budget on your phone or print it and carry it in your purse or pocket so you always know what you've allotted in each category. It's also helpful to add non-gift spending to your list so you can incorporate it into next year's budget. Tracking your spending is the best way to stay informed and adhere to your budget.

Tips to save money during the holidays

If the holiday season brings you stress because of the associated financial obligations, check out these tips to keep your costs under control:

Shop early

Retailers often slash prices around Thanksgiving – especially on Black Friday and Cyber Monday. If you start early, you may be able to get the perfect gift for a loved one at a great price, which will help you stick to your budget. By starting the budgeting and planning process well in advance of the season, you can decide how much you can afford to spend on a gift for everyone on your list. 

Shopping online is another way to keep costs down, as comparing prices and finding coupons can be much easier. Many companies also offer discount codes during the holiday season, so use third-party coupon sites to score the best deals. If you do shop in person, use your phone to check prices and look for discounts. You might be able to get a better deal through a price-matching offer.

Get another job 

Some people pick up extra jobs during the holiday season to earn some additional cash. Many retail stores hire seasonal workers to help during the busiest time of year, which often begins just after Thanksgiving. A part-time job could be helpful as you budget for the extra costs associated with the holidays.

Consider low-cost or free gifts

If you're really struggling financially, you don't need to spend money on lavish gifts. Instead, look for ways to give to your loved ones in less expensive ways. You could offer to babysit for friends and family who have children or arrange a fun night at home with your loved ones. The people you're close to will certainly be understanding of your situation, and they won't want you to overextend yourself just to give them a gift.

Give experiences as gifts instead of physical presents

Giving an experience can be a great way to save money while making memories. For example, consider taking a cooking class with a friend who loves to whip up tasty recipes instead of buying an expensive cooking set. You could cover the cost and enjoy an evening together. Kids and adults alike often remember experiences more than physical gifts.

Skip the latest features

If you're shopping for electronics, you can save a bundle by choosing a device from the previous year or foregoing some of the latest and greatest features. For most people, those features don't matter all that much. Devices like cell phones, TVs and tablets often don't change drastically from year to year, so purchasing something from the previous model year probably won't make a major difference.

With a realistic budget and a plan for trimming costs, you can enjoy the holiday season without feeling financially strapped. Make time for activities that don't cost too much, like decorating cookies or watching your favorite holiday-themed shows and movies. You can always make magical memories, regardless of the size of your holiday budget.

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