The holidays may be the most magical time of year, but it also happens to be the most expensive. Between the mountain of gifts you have to buy and the added costs of travel, parties, and decorations, you can easily spend a good chunk of your savings in the few weeks leading up to Christmas.
According to The National Retail Federation, Americans spent $209 billion on holiday-related purchases in 2020, and the average amount spent per person was $998. But it doesn’t have to be that expensive. With some smart budgeting, you can take control of your holiday finances long before the trees, wreaths, and ornaments go up.
We sat down with Kate Hammer, a business coach, and lifestyle designer, about the best ways to budget for the holiday season. Her advice can help you make (and actually stick to) a budget that works for your lifestyle, so there won’t be any surprise purchases hitting your bank account come December. Keep in mind that each person’s situation is different: If you can’t spend much money this season, there are plenty of ways to make the holidays special. The most important thing is that you go into it knowing how much you can spend, with a plan that can help you stick to the budget.
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Whether you’re starting a year out, or setting your budget the month before, setting guidelines for yourself is the most helpful thing you can do. Here are Hammer’s best holiday budgeting tips.
We’re about six months out from the holiday season-which means there’s still plenty of time to make a plan. She recommends making a list or spreadsheet where you can outline all your gift recipients with an estimated budget per person. Next, add up your expected travel or hosting expenses. Finally, account for any other categories that apply to you, like decorations, gift wrapping materials, food, and anything else you’ll need to spend money on. “By totaling these sums you will get an ideal holiday budget,” she says. “From there you can determine the amount you should put aside each month to cover these expenses, so that come fall you are ready to shop and book with confidence.”
If you feel overwhelmed after writing out all your predicted expenses, it’s okay to reassess. Take another look at all the expenses you’ve listed, and decide what you can cut. “If your total number feels too high, this is also the perfect time to reassess your priorities and look for places to trim back,” Hammer says. “It’s much easier to do this in the off-season, than when holiday vibes could lead you astray.”
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Once you know your total spending limit, divide that up among your different categories (like gifts, decor, and travel). You likely won’t have enough to cover absolutely everything you want to spend money on, so you’ll have to decide which categories are most important. “Give yourself permission to pull from one category to supplement another,” Hammer says. “For example, if you only spend 50% of your decor budget, consider moving the remaining half to your travel budget to snag those flights on your ideal dates. Similarly, if your friends decide to do a white elephant gift exchange instead of trading gifts individually, you could shift those savings toward the purchase of a more extravagant gift for your spouse. Maintaining your overall bottom line is key, not each category.”
If you’re working with a tight budget, you’ll have to cut back in some areas. Making a list of needs and wants can help you decide where to allocate your funds. For example, if classify gifts as ‘needs’ and new decorations as ‘wants,’ put most of your money in the gifts bucket and save a very small amount for new decor. And before you click “add to cart” on any decor piece, try to imagine exactly where the item will go in your home. “If you can’t visualize a good spot for it, take it as a sign not to make the purchase,” Hammer says.
If you enjoy adding to your holiday decoration collection each year, Hammer says you must do one critical task before adding any new pieces to your cart. “Take inventory on what you currently own,” Hammer advises. “Since holiday decor is often packed away, we can forget every single item we have in our possession. Before you buy anything more, check to see if anything needs to be replaced.”
Making a plan ahead of time means you can shop for gifts throughout the year-and take advantage of sales rather than paying full price for a gift a few days before Christmas. After you make your list of gift recipients (and a budget for each person), keep an eye out for sale items they might like throughout the year. As you find deals, cross that person off your list. Be sure to keep all your gifts in a designated area (like a closet shelf) so you know exactly where to find them when it’s time to start wrapping.
Events like Amazon Prime Day or Christmas in July sales can help you save money on gifts in the summer months so you have more available funds to spend on travel or hosting later in the year.
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It’s always easier to make the budget than to stick to it-but Hammer says it’s okay if you don’t get it perfect on your first try. “It’s much easier to stick to your budget when you use one year after year and you are able to set realistic goals versus your first time giving a holiday budget a try,” she says. “If you have never used a holiday budget before, be mindful that you may not get it right the first time. Take lots of notes on your budget every year as you run into moments of overspending so that you can make more realistic estimates in future years.”
Of course, that doesn’t give you a free pass to go wild with your spending, but knowing that this budget is more of a guideline can take some of the stress off and keep you from ditching it all together. “Don’t expect a perfect outcome,” Hammer says. “Each year it will get a bit easier to get it right.”