Budgeting for the Holidays: Make This Season Stress-Free and Affordable

visualspace / Unsplash

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

More than one-third of Americans racked up an average of $1,181 in holiday debt last season, according to LendingTree. Even worse, 42% are now stuck paying interest rates of 20% or higher — making those festive purchases a lot more expensive. If you want to avoid that financial hangover, it’s time to start planning ahead. Use these simple, stress-free strategies to budget for the holidays — and enjoy the season without the debt.

How To Start Budgeting for the Holidays

Now’s the time to start saving up for holiday purchases. The more time you allow between now and when you shop, the bigger your savings balance will be.

Step 1: List Out Expected Holiday Expenses

Make a list of what you’ll spend money on, and set a spending cap for each category. This helps you estimate your total holiday budget. Common holiday expenses include:

Gifts

• Family members
• Friends and neighbors
• Coworkers or clients

Greeting Cards and Wrapping

• Gift wrap and supplies
• Holiday cards and postage

Decor and Entertaining

• Decorations
• Party supplies
• Holiday meals and beverages
• New outfits for parties or gatherings

Travel and Pets

• Gas, flight tickets, hotels and rental cars
• Boarding fees or pet sitting

Step 2: Don’t Forget About Tipping

You might also want to budget for holiday tips. Here are suggestions based on Emily Post’s holiday tipping guide:

How To Save for a Holiday in Advance

Here are some practical tips to help you start budgeting for the holidays and savings ahead.

Open a Separate Savings Account

When saving for the holidays, it’s smart to open a separate savings account. This removes the temptation to spend the balance on other things.

Automate Savings Transfers

Another smart strategy is to automate your savings transfers, so it becomes effortless to save every time you get paid.

Divide the total amount you need to save by the number of paychecks you’ll receive between now and when you want to start spending the funds. Then, set up automatic transfers for that amount each time you get paid.

For example, say you need to save $1,000 for the holidays. You start saving in July, when there are 11 biweekly pay periods left through November 16th. That means each pay period, you’ll need to set up an automatic transfer of $90.91 — $181.82 per month — to save $1,000.

Find Other Ways To Make Money

If you won’t be able to reach your holiday budget goal through your paychecks, consider these extra strategies:

• Start a side hustle: Put what you earn toward your holiday fund. Even small gigs like pet sitting or delivery driving can add up.
• Use cash-back apps: Download apps like Capital One Shopping, Rakuten or Ibotta to earn rewards on everyday purchases.
• Redeem credit card rewards: If you’ve racked up points, convert them to gift cards or use them to buy gifts.

Use Cash or a Debit Card

Only use cash or a debit card when making purchases. Putting holiday purchases on a credit card to earn rewards can be dangerous because you might not pay it off.

Also, avoid purchasing holiday gifts through buy now, pay later apps. Even if your purchases are interest-free, they can still add up to debt that can be difficult to manage.

Track Spending To Stay Within Budget

Before making purchases or tipping, refer to your holiday expenses list and only spend up to what you estimated — no more.

Track your spending on a spreadsheet or in an app to ensure that you don’t go over your budget.

Tailor Your Holiday Budget to Your Lifestyle

No matter your plans or income, here’s how to make a holiday budget that works for you:

• On a tight budget? Consider the 1.5% rule, which means you spend no more than 1.5% of your annual income on holiday purchases. If you make $45,000, you would spend no more than $675. If your budget feels too tight this year, picking up a few side gigs could give you a little more breathing room.
• Traveling this season? Use third-party apps to shop for the best prices on flights and hotels. If you’re driving, use your own car instead of a rental and pack meals to skip pricey fast-food stops.
• Staying local? Budget for the extras — things like a tip you forgot, an impromptu meal with visiting friends or last-minute drinks with coworkers.

7 Low-Effort Ways To Stay on Budget

1. Make a list of your expenses before deciding on your savings goals.
2. Take inventory of what you already have before shopping, like gift-wrapping supplies or decor.
3. Consider secondhand decor to save big.
4. Send holiday e-cards to save on greeting cards and postage.
5. Plan holiday meals in advance — you can watch the sales for things you need.
6. Consider booking flights on the actual holiday if you’re looking to save on airfare.
7. Download an app like Christmas Gift List Tracker or Christmas Gift List to create gift lists, set budget limits and track purchases.

Holiday Budgeting Tips: Start Sooner Than Later

Don’t wait. Budgeting for the holidays early is the key to avoiding financial stress and enjoying the season on your terms. The quicker you calculate your holiday budget, the sooner you can start making progress toward your savings goals. Plus, you’ll have the funds to take advantage of all the holiday sales — a smart move for your wallet.

Share This Article: