Budgeting for the Holidays

Nobody wants to seem like a Scrooge during the giving season. In fact, Americans have a tendency to overextend themselves to put a dollar amount on their appreciation of their loved ones, racking up an average of $1,054 in holiday debt last year, according to a survey by MagnifyMoney. Only half of those surveyed expected to be able to pay off that debt in three months or less.

Giving gifts can feel great, but it shouldn’t come at the expense of your financial security.

How do you create a budget that will get you through the most wonderful, expensive time of the year? We talked to some experts and got their tips.

Start Now for Next Year

It feels like the holidays come earlier and earlier every year, but that’s no excuse not to start saving for them ahead of time, if you have the means to. That means that, while this year’s holiday shopping season may already be upon us, you should start thinking about next year as soon as all the commotion from this year dies down.

If you have the space in your regular budget for it, it can be immensely helpful to start putting away money for the holidays ahead of time, so you’re not forced to take on debt to be able to afford gifts when the season hits next year.

Don’t forget to factor in any extra costs, like travel and entertaining expenses.

You also don’t have to wait until the holiday shopping season to start stocking up on gifts. Giving yourself time to shop and find things at the best prices can save you a lot of money.

“Starting early allows you to take your time to find the best deals and to buy when things are on sale,” Sarah Hollenbeck, shopping and retail expert at BlackFriday.com, said.

Timothy Wiedman, a certified financial planner and retired associate professor of management and human resources at Doane University, said starting early also makes holiday spending more manageable.

“My credit card bills in December and January are pretty much normal,” Wiedman said. “Most of my spending is spread out over five months or more, so the bills are easy to handle.”

Make Your List (and Check It Twice)

Set yourself up for success by planning ahead and writing everything down or tracking it in an app or spreadsheet.

List all the people you plan to give a gift to. Then, figure out how much you can realistically spend without going into debt. Let this number guide you as you plan your holiday spending.

“One reason holiday spending gets out of control is lack of planning,” Hollenbeck said.

Carla Dearing, CEO of Sum180, an online financial wellness service, said many of us make holiday spending decisions based on what we think we should spend, rather than what we can actually afford. To prevent overspending, she recommends allocating no more than 1.5% of your income for all holiday expenses, including those for travel and entertaining.

“Big-ticket items such as travel expenses should fit within this budget, and smaller expenses like holiday decorating or special dinners out should be factored in, as well,” she said.

Plan exactly how much you will spend on each person and what your gift will be, then shop around for the best prices.

“By setting the budget and choosing the gift, you’ll be prepared to buy the gift at just the right time – preferably when it’s on sale and you can save money. If you don’t have a gift picked out before you shop, there’s a good chance you’ll fall prey to intentional advertising that gets you to spend more money than you wanted to and, in some cases, buy something that the recipient may not even like,” J.R. Duren, finance writer and senior editor at HighYa.com, said.

It might also be helpful to decide how you are going to pay for your purchases. For example, if you’re worried about spending more than you should, pulling out a set amount of cash ahead of time can keep you on track. However, as long as you spend responsibly, you don’t have to lock away your credit card until after the new year. For example, if you have to charge purchases to a credit card, just make sure the amount is something that you can and will pay off right away.

By planning out everything (and allowing yourself wiggle room for unexpected costs) and sticking to your budget, you won’t end up taking on debt.

In fact, Kevin Gallegos, senior vice president of client enrollment for Freedom Debt Relief, advised making it a hard rule that you won’t go into debt with holiday spending.

“Easier said than done, but holidays are not about outspending and creating financial stress for months to come. Shift the focus, as hard as it may be, to experiences and spending time with those close to you,” he said.

Set Expectations

If you’re cutting back on what you’re able to spend this year, you should communicate that to the people you exchange gifts with. Work together to come up with solutions that work for friends and family, so they don’t feel like they have to spend money they don’t have.

If you have a large list of people to get gifts for, see if you can organize gift exchanges for some of the groups within your list. Or, simply set limits on the amount each person can spend on a gift.

Some people can be set in their ways when it comes to how they celebrate the holidays, so to get them on board, tell them why this matters to you.

“Gently but firmly inform friends or family that you want to make the holidays more meaningful this year. Explain that you will be finding ways to share experiences, rather than giving expensive gifts,” Gallegos said.

Your friends and family might be more open to discussion than you think. They might even be relieved. After all, the holidays get expensive for everyone.

“You may be surprised at how others appreciate and welcome the change. Plus, it’s unlikely your loved ones would want you to suffer financially in order to give them a bigger gift,” he said.

Strategize Your Shopping

Don’t just head to the store, blindly hoping that you’ll get the best deals. If you want to save money when you’re shopping for gifts, you’ve got to think ahead and use all the tools at your disposal. Hollenbeck shared some of her tips for getting the most bang for your buck.

If you’re shopping at a popular retailer, buying discounted gift cards online can help you spend less while getting everyone the gifts they want.

“Sites like CardPool and Raise allow people to sell gift cards to others for a discount – sometimes up to 10%. This is a great strategy to use all year-round when you’re doing your everyday shopping, but it can have a huge impact when you try it during the holidays,” Hollenbeck said.

If you’re shopping online, there are plenty of tools available to make sure you never pay full price for anything ever again.

“One of the easiest ways to save money when you’re shopping online is to take advantage of technology. Use browser extensions that comb the internet for coupons and special codes, so you’ll instantly save more,” she said.

Get Creative

Handmade or DIY gifts sometimes get a bad rap, but they have the potential to be cherished gifts that are more meaningful than anything you could buy in the store.

Danielle Kunkle Roberts, cofounder of Boomer Benefits, a Medicare insurance agency in Fort Worth, Texas, works with parents and grandparents who are trying to keep balanced budgets that account for their needs while allowing them to participate in things like holiday gift-giving. She shared a tip from a client on handling the holidays.

“Rather than spending money on gifts for every child and grandchild, she has been working on putting together photos and memories in a personalized box for each family member to receive on Christmas. This is such a sweet and budget-friendly way for those in retirement to still enjoy the magic of Christmas with their family without worrying about breaking the bank,” Roberts said.

If you don’t want to go the sentimental route, make something that you know the recipients will find useful. Whether it’s a jewelry box or a set of colorful coasters, they’ll be thinking of you anytime they use your gift.

Not super crafty? You usually can’t go wrong with food, so whip up a batch of their favorite treat to give as a gift.

“Something else that my wife and I used to do when I was in grad school (and had more time than money) was to make 16 or 17 jars of flavored hard-sheet candy using a simple stovetop recipe. We gave away those jars of homemade candy as gifts each season. Giving thoughtful holiday presents doesn’t mean that folks have to go into debt!” Wiedman said.

How to Stay (or Get Back) on Track

According to Hollenbeck, setting a budget for yourself is one thing, but actually following it is another. She recommended finding someone else, such as a significant other or close friend, who has similar financial goals for the season, so you can keep each other on track.

“Discussing your plans with others helps to keep you honest and accountable, not to mention, you can both sulk together when you skip going out to the bars to save money,” she said.

It might also be helpful to look at your holiday spending in terms of your overall budget, and how overspending could affect you once the holidays are over.

“Holiday spending doesn’t happen in a vacuum. Yes, this is a special time of year. And it’s tempting to suspend our usual rules and think that – just like calories on vacation – holiday expenses don’t matter. But the truth is they do. The decisions you make this season will have an impact on your overall financial picture,” Dearing said.

If you do stray from your budget, remember that one setback doesn’t mean the whole thing is blown. If you splurged more than you should’ve on a gift for someone, you might want to consider returning it and getting something else. It can feel not in the spirit of the holiday season, but one gift isn’t worth creating financial trouble for yourself.

Another way you can get back on track is to cut back spending in other areas of your budget. And if you’ve gotten yourself into debt, do some damage control.

“If you’ve used a credit card to make your purchases, then make a plan to pay off the overspending within two months so you avoid paying too much in interest,” Duren said.

It can be easy to get caught up in the consumerism of the holidays, and you might feel a lot of pressure to go overboard, but remember that staying financially healthy should be your #1 goal. The holidays will pass, but the debt you accrue can hang on and hurt you for months or even years after.

“Remember that nothing is more important than protecting your well-being – physical, mental, emotional, financial. Finances contribute significantly to holiday stress,” Gallegos said.  “From a financial perspective, if you safeguard your budget, you’ll make it through the holidays with less stress and a clearer conscience – which will bring plenty of joy, now and in the new year.”

How will you be saving money this holiday season? Share your strategies in the comments below!

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