The excitement of the holiday season is building as stores prepare for one of the biggest commercial seasons of the year—but with this celebration of over-the-top decorations and holiday gatherings comes the fear of overspending and financial strain.
According to PwC’s Annual Holiday Outlook, holiday spending is projected to rise by 7%, reflecting both an increase in consumer activity, as well as the lingering impact of inflation and its elevated costs.
To avoid feeling trapped in your financial decisions, it’s important to plan your budget and strategize financial decisions that will allow you to enjoy the holiday season stress-free. Whether it’s gifts, travel or seasonal celebrations, a little foresight can go a long way in ensuring your holidays are both joyful and financially savvy.
So, where do you begin?
Reflect on Last Year’s Holiday Spending
Review your bank and credit card statements from last holiday season and ask yourself the following questions:
- How much did you spend on holiday purchases?
- Were you satisfied with your spending habits?
- Are you in the same financial situation as last year? Consider any significant changes that may have occurred, such as buying a house, losing a job, having a child, etc.
Compare those costs to your current income and current monthly spending habits. Can you afford to spend the same amount? If not, we have tips for creating a managed budget that still allows you to have holiday fun (if you stick with it!).
Create a List of Priorities
If you’re looking to cut costs, you’ll need to decide which past financial decisions are a must for this holiday season, and which ones you can be happy without. A good way to go about this is by creating holiday spending categories.
Here’s an example of what these categories may look like:
1. Gifts
One of the biggest challenges during the holiday season is the cost of gift giving, and the expectations surrounding gift exchanges. Your first step to determining your gift budget should be making a list of all the people you will need to purchase gifts for this holiday season. If you frequently celebrate with large groups of people, and are expected to buy gifts for each person, this can add up quicky. One way to cut costs is by suggesting your friends or family take part in a Secret Santa or White Elephant gift exchange. This is a budget friendly idea that is also tons of fun because the more people, the merrier your experience is!
Once you have your list of people who you want to purchase gifts for, create a reasonable budget based on last year’s holiday spending and your current bandwidth. Consider taking advantage of holiday sales to get high quality gifts for low prices. The most important part is to stick to your budget—you’re creating it for a reason!
Don’t forget to budget for holiday gift wrapping supplies as well—and a tip for the future is to purchase these supplies in bulk or after the holidays, when they are often discounted, for preparation of the next year.
2. Holiday travel
Traveling during the holidays can get pricey—as travel companies know that there is a high demand for their services during this time. Before deciding where you’ll be staying for the holidays, make sure you do your research.
Here are some questions to ask:
- How does the cost of driving with gas and tolls compare to the cost of airfare, bag fees and driving services?
- Will you be staying at a hotel or at someone’s house? Have you considered Airbnb?
- How much will you be eating and drinking out when you’re traveling?
- Would it be more economical and possible for you to host the holiday instead?
Create an estimate of how much your expenses will be, and if it’s too high, there are usually some alternatives. Holiday travel can also be a great time to cash in on hotel rewards or airline miles.
3. Food and entertainment
Whether you’re hosting or attending a holiday party, you might be spending a lot more money on food than usual. Rather than staying in to host a group of people, try finding free or inexpensive holiday events happening in your local community. This is a great alternative to pricey holiday extravaganzas, and an alternative that will still bring the festive spirit to life. Search on township websites, local Facebook groups, library websites and Google to see what events may be occurring.
You can even be crafty and combine food with entertainment. If you’re planning on making holiday cookies, but also want to host a small gathering, combine the two and have a holiday cookie decorating party! This can even serve as a gift, as you can send cookies home with friends and family.
4. Holiday decorations and attire
As fun as it can be to buy new decorations or family pajamas each year, you need to determine if this is a must for your family. And if these things are a must, look for more budget-friendly options. Thrift stores often have Christmas figurines and decorations for affordable prices—and they can even make great gifts! As for clothes, you can choose options that stick with family tradition but fit this year’s budget. For instance, rather than getting the whole family matching pajama sets, opt for matching pajama shirts or bottoms. This allows for the family pajama tradition to live on, which keeps the prices lower—and adds room for some individuality!
These are just a few examples of holiday spending categories, but they change based on personal needs and preferences. Look at what you usually spend your money on during the holidays to help personalize the categories based on your holiday habits.
Determine Your Budget
Once you’ve created the main categories for your holiday spending, you need to make sure all your monthly payments are up to date—the holidays are not a reason to go into debt.
Before finalizing how much to allot for each category based on the priorities list and last year’s holiday spending, review your monthly budget to determine what extra money you have. Now is the time to evaluate the non-holiday expenses you can cut to accommodate the extra spending.
Below are some questions to ask yourself:
- Are you buying clothes or shopping for other items you don’t need?
- How often do you go out to eat? Can you eat at home more frequently?
- Are you straying from the grocery list when shopping for food?
- Can you cut back on reoccurring charges like streaming services?
Once you’ve determined your regular expenses, like housing, utilities, groceries and gas, and cut out any unnecessary spending, you should be able to see how much money is remaining in your budget for the holidays. Understand what your limitations are, and how much money you can spend while still being financially stable. Start planning as early as possible so you can spread costs out over time, and gradually save money to fund all your holiday needs.
Remember, the holidays aren’t supposed to reflect how much money you have or don’t have. What matters at the end of the day is if you enjoyed spending time with your friends and family—and if you can say you did, you did it right!