10 Ways to Budget for the Holidays

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Budgeting helps you spread holiday cheer without draining your savings or incurring debt.

For many, the holiday season is a time to gather with friends, family members, and loved ones to celebrate togetherness and enjoy one another’s company. But no matter how you celebrate the holidays — even if all you do is celebrate the season itself — it’s also an expensive time of year.

The cost of food, decorations, gifts, travel, and more can make a hefty dent in your bank account balance. Last year, Americans planned to spend an average of $998 on holiday expenses, including gifts, food, decorations, and other purchases.

But without a structure in place to hold you true to your financial goals, it might be easy to quickly exceed your spending limits.

Budgeting for the holidays — and sticking to your budget — helps limit your holiday spending without exceeding your income, draining your savings, or incurring additional debt.

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Why Do You Need a Holiday Budget?

Creating a budget allows you to manage your financial goals, needs, and expectations. By compartmentalizing your income and expenses, you may better understand how much money is coming in and where it’s being spent. In turn, you may adjust how and where you spend your money to better fulfill your financial plans.

Though there are multiple approaches to creating a budget, some people choose to follow the 50/30/20 rule, in which:

  • 50% of your income goes toward your needs (rent/mortgage, car payment, utilities, groceries, etc.)
  • 30% of your income goes toward your wants and discretionary spending (vacations, a new gaming console, etc.)
  • 20% of your income goes toward savings and debt repayment

Because holiday expenses aren’t entirely necessary, they fall under the “30%” of the 50/30/20 rule. If you chose to follow the 50/30/20 rule, the maximum amount of money you could budget for the holidays would be 30% of your income.

For example, the annual median household income in 2020 was $67,521, or $5,626.75 per month. Following the 50/30/20 rule would result in a discretionary budget of $1,688.03 — 30% of your monthly income — from which you could pay for wants and desires, including holiday expenses.

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10 Ways to Budget for the Holidays

Without sticking to a budget, it’s possible to zoom right past your expected spending limits, especially when you’re buying gifts, food, decorations, and wrapping paper to celebrate the spirit of the season. Before long, your credit card’s maxed out and your rent check bounces.

Your discretionary spending (no matter what percentage of your income) might go much further when you break it down into a holiday-specific budget.

1. Establish a holiday savings account

You don’t need to wait for the holidays to roll around before you start putting money away. Many banks and credit unions, as well as some employers, offer the opportunity for you to set up a holiday savings account (which may also be called a Christmas club account).

When you open a holiday savings account, a portion of each paycheck is automatically deducted and deposited into the account. On a specific date each year, the savings you’ve accumulated are deposited into your regular checking account or easily withdrawn to help you pay for some or all of your holiday expenses.

Though some holiday savings accounts offer interest, the interest rate may be lower than a comparable savings account. You may also be assessed a fee for withdrawing funds earlier than the date of disbursement. However, this incentivizes you to keep the money socked away for the holidays without prematurely dipping into it.

Example
If, on January 1, you began depositing $20 per week into a holiday savings account with 0% interest, you would have access to $860 if funds were disbursed 43 weeks later (on October 31).

2. Make travel plans in advance

The holiday season in America encompasses Thanksgiving, Christmas, Hanukkah, Kwanzaa, and New Year’s Day. This year, upwards of 53.4 million people are expected to travel during the Thanksgiving holiday, eager to see relatives, dive into some delicious food, and enjoy good company.

But holiday travel expenses can add up, especially if you don’t plan your travel arrangements in advance.

For example, in 2021, domestic round-trip airfare is expected to cost $300 for Thanksgiving flights booked before Halloween, and $390 for Christmas flights booked before Thanksgiving. And though train tickets don’t fluctuate as much as airfare, booking in advance often allows you to snag the cheapest deals.

If you need hotel reservations try to book early, especially with a refundable, pay-when-you-arrive policy. Doing so will give you the flexibility to continue shopping around for the best rates, while also ensuring you have a backup option if you don’t find anything better.

3. Set limits for gifts

It’s easy to get carried away with gift-giving, especially with those closest to you or who need an extra boost of holiday cheer. At the same time, it’s important you don’t allow your generosity to send you into debt.

Your discretionary holiday spending limit — including the costs of decorations, food, and travel — dictates how much money you may spend on gifts. Once you’ve determined your total spending limit, start jotting down a list of people you plan to give presents to.

Then, categorize your list into groups, treating each like a layer of an onion. Budget higher spending limits for those in the center of the “onion” — your closest friends and family. As you get closer to the outer layers of the onion and categorize extended family, friends, coworkers, or your postal worker, decrease your allotted spending limit.

If you hit your budget cap, start shedding layers of the onion or reduce each group’s allotted maximum spending limit.

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4. Use credit cards wisely

Credit cards can be a helpful tool for building credit, but they may also offer the opportunity of blowing up your careful budgeting. 40.7% of Americans with credit cards carry a balance from month-to-month, which means they’ve incurred debt and are on the hook for paying interest each month.

If you choose to do your holiday shopping with a credit card, avoid overspending and racking up credit card debt. Only charge what you can afford, then pay off your balance in full — which means not exceeding your discretionary budget limit.

If you have a rewards credit card, make sure you’re enrolled into your card’s rewards or cash-back programs, but don’t overspend just to chase rewards, either.

5. Take advantage of seasonal sales

The National Retail Federation expects Black Friday, Cyber Monday, and other holiday events to account for $843.4 billion and $859 billion in sales. Though there are plenty of reasons to avoid these massive sales, you may score some great deals — and save money — by contending with the crowds or crashing, laggy online stores.

With your shopping list in hand, scour your favorite retailers and online stores for upcoming sales and discounts. Come up with a plan for what stores to purchase from when, but keep in mind that Black Friday and Cyber Monday may actually last for longer than a day, including up to a week (or more), typically beginning on Thanksgiving day.

6. Chip in for expensive gifts

Some people are hard to shop for. Others are deserving of a gift that’s grandiose and expensive. However, buying an expensive gift may exceed your allotted spending limit.

Depending on the recipient, team up with your siblings, friends, or co-workers to each contribute toward the purchase price of an expensive gift. This way, you can get Dad that new grill he’s had his eye on without any one person breaking the bank (or their holiday shopping budget!).

7. Organize a gift exchange

Holding a gift exchange, such as a Secret Santa or Yankee Swap, at your holiday party or potluck is a great way to spend time with friends, family, and co-workers. It’s also an effective way of ensuring everyone who participates gets a gift without exceeding their holiday budget to give gifts to others.

This is accomplished by setting a maximum spending limit. For example, if you’re setting up a Secret Santa at your workplace, you may set a limit of $20 per gift. Each participant would then purchase a gift or gifts totaling up to $20 per person. As a result, everyone gets a gift of equivalent value without anyone overspending (unless their name is Michael Scott).

8. Take the DIY route

Some of the most thoughtful presents are handmade. DIY gifts are often cherished for their uniqueness and serve as a representation of all the hard work, time, and care that went into crafting them.

Many homemade gifts can be put together for less than $15. In some cases, you may even have some of the ingredients or materials lying around your home, just waiting to be repurposed into a holiday gift for someone special.
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9. Slash your expenses

Reducing your monthly expenses can help you save money and increase how much money is allotted to each of your budget categories. In fact, putting a budget together in and of itself is one of the first steps you can take to lower your expenses.

Part of creating a budget involves listing your expenses, such as your mortgage or rent, car payment, and utilities. You should also include other expenses in that list, such as your gym membership, streaming subscriptions, and other costs.

Many of these expenses may be cut, especially if you’re not getting your full money’s worth from them. After all, do you really need all those streaming services?

Evaluate your list of expenses to see what services you can downgrade (such as internet speed or your cell phone data allowance). With other expenses, such as your utilities, consider ways you can limit your water or electricity usage.

If you’ve improved your credit score recently, consider applying for an auto loan refinance to reduce your monthly loan payment — which could save you upwards of $102.24 per month.

Slashing your expenses means keeping more of your money, which in turn could be spent on even more delicious food, extravagant decorations, or smile-inducing gifts.

10. Start a side hustle

At the start of 2021, 34% of Americans reported having a side hustle of some kind, with another 24% planning to start one by the end of the year. 46% of individuals with a side hustle claimed they were motivated to start one by the prospect of generating passive income.

Side hustles — which can include anything from rideshare driving to selling handmade crafts on Etsy — can help you supplement your income. This extra cash may then be put toward paying down your debt, building your savings, or making sure your house has the best holiday decorations in the neighborhood.

Set a Budget for the Holidays… and Stick With It

Just as Santa manages to hit every house in the world without skipping a beat, it’s on you to stick to your holiday budget. By doing so, you may prevent excess holiday spending, avoid taking on holiday debt, and more easily reach your financial goals — which, in many ways, is a gift to yourself.

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About The Author


Daniel Mattia

Daniel Mattia is a freelance content writer and author. He's written extensively about insurance, personal finance, and small business. Daniel's past and current clients include The Zebra, Bestow, Ensurem, and others across a variety of industries.


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