Don’t Spend More Than This Expert-Recommended Amount When Holiday Shopping
Written by
Angela Mae
Edited by
Amber Barkley
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The National Retail Federation found that the average American consumer will spend around $875 this year on holiday shopping alone. This amount includes things like gifts, food, decorations and related purchases.
But what does this mean for you, and how much should you be spending when holiday shopping?
While everyone’s situation is different, experts agree that you should keep your holiday shopping budget to a minimum so as to avoid getting yourself in financial trouble. Here’s the general rule of thumb when creating your budget and some tips on how to spend less money during the holiday season.
Keep Your Yearly Holiday Shopping to 1% of Your Income
Determining how much money to spend on yearly holiday shopping is based on such factors as your personal financial situation, how important the holidays are to you and expectations from your loved ones. But despite all of this, it’s still important to have a clear holiday shopping budget.
“I often suggest that holiday spending should not exceed 1% of annual income,” said Forrest McCall, finance expert and founder of Passive Income Freak. “For example, if you earn $50,000 a year, you might aim to spend no more than $500 on holiday shopping. This guideline helps ensure that holiday spending doesn’t compromise financial stability or long-term goals.”
Peter Ramsay, businessman, financial expert, and co-founder and editor-in-chief of EV inFocus, seconded this by saying, “My advice is to keep it under 1% of your annual income… Remember, the holidays are just one season, and your financial well-being matters year-round.”
Put another way, if you plan to spend $875 on holiday shopping this year, your annual income should be $87,500. But if you earn less than this amount, you might want to lower your budget a little.
Spend Only What You Can Reasonably Afford
The 1% rule works in many cases, but not always. Depending on your personal circumstances, you might find that this is too much to spend when holiday shopping. If you have long-term financial goals, such as early retirement or saving for a down payment, you might want to reduce your spending budget.
“Since everyone’s financial situation is different, there is no hard and fast rule for how much someone should spend on holiday shopping,” said Bri Conn, co-host of the Childfree Wealth Podcast. “For some, $100 is a lot to spend, while others may comfortably spend $1,000. Spend what you can comfortably afford while continuing to work toward your financial goals.”
Create a Holiday Budget (And Start Saving)
If you don’t already have a holiday-specific budget, now’s a great time to create one. You can use it for the rest of this year, and you can always adjust it for next year.
“Know what you can afford, and don’t go over-budget: Set a realistic spending plan for your holiday shopping adventures,” said Dr. Kate Mielitz, an accredited financial counselor and AFC program manager for Beyond Finance. “We are down to the wire, so look critically at what you can afford. You may need to get creative, but I encourage you to stick to your budget and save a little every month next year.”
If you can save even $20, $50 or $100 a month from January 2024 on, you can reduce financial strain when next year’s holidays come around.
Review Your Overall Financial Situation
“It is easy to get wrapped up in the excitement of holiday shopping and spending, but it’s also one of the most important times of the year to be conscious of what we are spending,” said Kelly Palmer, a chartered financial analyst and the founder and chief wealth officer of The Wealthy Parent LLC.
To avoid overspending, assess your current financial situation and be honest with yourself about what you can — and cannot — afford.
“Check your emergency fund is in good order, you have a plan to pay off debts, and you are saving for your current financial goals,” suggested Palmer. “Assuming you have those items in order, then you can consider a reasonable holiday budget. Your budget should align with your goals and values as a family.”
Set Clear Expectations
Setting expectations for yourself, friends and family members can be tough, but it’s often necessary.
“If you can’t afford to buy the gifts you want to buy, choose something meaningful but less expensive. It sucks to say, ‘No, I can’t afford it,’ but you have to be honest with yourself,” said Mielitz. “I get it — we want to keep up with the Joneses — but sometimes we can’t afford to buy like other people do.”
Get Creative and Have Gift Exchanges
Even when you’re trying to be frugal, you can still have a great time this holiday season — and so can the people you care about. It all starts with a little creativity and conscious spending.
“By being mindful and creative, you can have a joyous holiday season without breaking the bank. After all, the best gifts are often the ones that money can’t buy,” said Ramsay.
One way to get creative is to go with homemade gifts.
“Bake cookies, knit scarves or create personalized photo albums. It’s thoughtful, budget-friendly and surprisingly fun,” said Ramsay.
Another option is to set up gift exchanges with friends, family members and colleagues.
“Get crafty with gift exchanges,” said Ramsay. “Secret Santa or White Elephant swaps are budget-conscious and hilarious. Just set a spending limit to avoid any office meltdowns.”
Pay in Cash
Many Americans will take on debt to afford the holidays, but this only leads to more financial stress later on. If possible, avoid things like credit cards or Buy Now, Pay Later programs and use cash instead.
“Whether it’s cash via your debit card or the kind that folds and jingles in your pocket, cash is the best way to buy gifts throughout the year,” said Mielitz. “Paying cash not only enables you to maintain control but also helps you deliberate how to spend. Studies show consumers feel the loss of money quicker than by swiping a card. Plus, when it’s gone, it’s gone.”
Take Advantage of Deals and Rewards Programs
Many retailers offer early-bird discounts and online flash sales, so keep an eye out for these as you go about your holiday shopping. And while Cyber Weekend is over now, keep an eye out for future deals around this time next year.
“Consider subscribing to email newsletters from the retailers you love — many companies appreciate the loyalty and will give you early access to sales, first look at new products and even special discounts,” said Matt Gromada, head of family banking at Chase. ”Online and in-store promotions are also great ways to snag deals on holiday gifts.”
While you’re at it, make sure you’re using any loyalty or rewards programs, as these can get you additional deals.
“You may even be able to use rewards and find deals within your banking app,” added Gromada. “For example, Chase Offers brings great deals from popular businesses and retailers with no coupon, codes or vouchers to remember, and no registration is required.”
Gamify Your Savings
Another way to cut back on spending and save more this holiday season is to gamify your savings.
“Challenge yourself and your family by staying in to reduce expenses now through the holidays. For example, avoid dining out and make dinner together for a more affordable experience,” suggested Kelly Jones, financial advisor at Thrivent. “Throw in some competition to see who spends the least in the coming weeks. Doing this also sets a positive example for your family, because they’ll see the thoughtful approach you’re taking with saving.”
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