Brilliant Holiday Budget Tips From Financial Advisors

Before you know it, the holidays will be here — and so will all the added expenses that come with them. The costs for holiday cards, decorations, gifts and travel can really add up, and if you don’t have a budget in place, the most festive time of the year can end up leaving you in debt.

Now is the time to start budgeting for the holidays, and ideally, start planning ahead for the holidays next year. Not sure where to start? GOBankingRates spoke to financial advisors about how they personally budget for the holidays. Here’s how they keep their holiday spending in check.

Last updated: Nov. 3, 2020

Have a Separate Savings Account Specifically for Gifts

Daniel Ruppel, a financial planning strategist with TIAA, has a savings account dedicated to buying gifts throughout the year, including gifts for birthdays and for the holidays.

“Setting money aside for gifts keeps the savings strategy more focused,” he said. “If too many separate expenses are bundled together, it could end up making it harder to account for how that savings pool should be divided among various goals. For me, setting money aside throughout the year works well for holiday gifting since the timing of those gifts is known well in advance.”

Ruppel contributes to this savings account through automatic transfers throughout the year. At the end of the year, whatever is left in the gift account becomes his budget for holiday gift spending.

“Still, it takes some discipline to stick with it,” he said. “That means keeping track of what I’ve spent, and tapping into that savings to ‘cover’ those purchases along the way. I’ll admit that I usually end up spending a bit more than I planned (and saved). But by setting money aside throughout the year, it helps me to mostly stay within the budget when it comes to holiday spending.”

Set a Budget Based on How Much You've Spent the Previous 2 Years

Leanna Haakons, founder of Black Hawk Financial, bases her holiday spending budget on how much she’s spent in previous years. If you’re creating a holiday budget for the first time, look at how much you’ve spent over the past two years to set your savings goal.

“Write down or track on a spreadsheet or app your approximate expenses for everything from gifts to food, alcohol, decorations, costumes, hostess gifts for parties, etc.,” Haakons said. “Make that your annual savings goal for your ‘holidays’ fund.”

Once you know how much you will need, divide that amount by 12 and contribute that amount monthly to your holiday fund so you’re set for the coming year.

Limit Your Holiday Spending to Half a Paycheck

Lauren Anastasio, certified financial planner at SoFi, begins saving for holiday spending in August or September.

“I don’t target an exact dollar amount for my holiday spending; instead, I try to limit my shopping to what I can afford that year,” she said. “I start by trying to put money aside each paycheck a few months in advance, and what I’ve saved up by Thanksgiving will be my budget since I typically do most of my gift buying on Black Friday or Cyber Monday. While each year is a little different depending on other expenses, I do try to cap my overall holiday spending at one week’s pay, or approximately half of a paycheck.”

Apply the 50/20/30 Budget to Holiday Spending

Lacey Cobb, CFA, CFP, director of advice solutions at Personal Capital, uses the 50/20/30 rule year-round, including during the holidays.

Under this rule, “50% of your earnings go to essentials (like rent, utilities and food), 20% of your earnings go to financial priorities (like retirement and emergency savings) and 30% of your earnings go to lifestyle purchases (like entertainment and shopping),” she said. “So how much do you allocate for holiday spending? Say you make $80K a year, estimate spending no more than $840 as the most you should spend on holiday gifts.”

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About the Author

Gabrielle Olya

Gabrielle joined GOBankingRates in 2017 and brings with her a decade of experience in the journalism industry. Before joining the team, she was a staff writer-reporter for People Magazine and People.com. Her work has also appeared on E! Online, Us Weekly, Patch, Sweety High and Discover Los Angeles, and she has been featured on “Good Morning America” as a celebrity news expert. 

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