Credit Sesame with advice on setting a holiday budget this season.
Debt isn’t your friend at any time of the year, and holiday shopping can make Christmas much less jolly. One in three Americans took on holiday debt in 2021, averaging $1,249 in debt that they likely carried into the new year.
Creating a holiday budget before you start spending on gifts, decorations, food and holiday travel, among other expenses, can help you avoid extra debt after the holidays.
Your future self will thank you for avoiding the holiday hangover, especially with interest rates on credit cards rising to an average of 18.7%, their highest level in 30 years, as the Federal Reserve tries to contain inflation. Nearly half of Americans with credit cards carry debt on their cards, with an average balance of $5,270, the Washington Post reports.
How much did you spend last year?
To start a holiday budget, find last year’s bank and credit card statements to see how much you spent on holiday items. You may already have an idea in your head, but checking your old bank statements can give you exact figures. Your bank or credit card company may have expenses online if you no longer have the paper statements.
Be sure to include spending categories that have anything to do with the holidays that you do not spend at other times of the year. They can include:
- Food and drinks for holiday party
- Dining out
- Extra tips for daycare providers and others who you don’t normally tip
- Anything specific to your family?
All of this information should help you figure out what areas you can cut back on, or where to add if you can afford to raise your holiday budget.
Any changes since last year?
If you’ve had a baby, moved into a new home, had a salary cut or got a raise at work, or had any other big change that affected your family budget, then factor those into your calculations.
Any big expenses, especially continuing ones such as a child, may lower your Christmas spend budget if your income hasn’t increased.
Set the budget and allocate funds to categories
Set a total budget for the holiday season. It should be a reasonable number that you expect to stick to. You should know where the money is coming from for this extra spending. Perhaps you saved for the holidays. You may work at an extra job for a month or so, have a holiday savings account at your credit union that you’ve been contributing to all year, or plan on charging most of it to a credit card.
If a personal loan or credit card is how you plan to pay for any extras in December, then have a plan to pay off the debt completely in January. If you expect to pay interest on the debt, then lower your budget.
How much your overall budget will be for the holidays is up to you, but if you want to compare what others have planned for in the past, the National Retail Federation reports that in 2021 consumers planned to spend $997 on holiday items. The biggest category was gifts, at $648; followed by $231 on non-gift holiday items such as food, candy, decorations and cards; and $118 on other non-gift purchases.
In general, financial experts say that spending 1% of your income on holiday items is reasonable and affordable for most people. So if you and your spouse have a combined income of $120,000, then spending $1,200 on holiday items should be safe.
Set a dollar amount per category
By comparing how much you spent last year with what you can afford this year, you should be able to put a dollar amount on each category of holiday spending you’re planning for.
A rule of thumb for gifts is to spend $50 to $100 on a gift for a family member, and $20 to $50 for a friend or coworker. Your budget and other factors may call for lower amounts.
If you’re going to host a holiday party this year, then you may want to cut back on other holiday expenses. Maybe you can stay home and not travel in December, or not buy a new outfit for your party.
Hold yourself accountable
The hardest part of all of this may be sticking to your holiday budget. A spouse can help by holding you accountable, and so can a budgeting app. You can also just stick with pen and paper to keep track of spending and make sure you’re staying within your budget.
A budget app on your phone is one of the easiest ways to set a holiday budget, letting you quickly see the categories you’re spending in and how they affect your overall holiday and monthly budgets.
And don’t let the importance of a holiday budget overshadow your regular budget for the month. You still have rent or a mortgage to pay, groceries, utilities and other regular bills to pay in December, January and beyond.
If you’re not already budgeting for those everyday expenses, then starting a holiday budget can be a great reminder to start a monthly family budget now.
Consumers who like creating a holiday budget may also enjoy:
- Improve Your Finances With a Passive Income Stream
- Pay Down Debt as a Financial Gift to Yourself
- Budget Calendar: Worth Buying or Build One for Free?
Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.