Holiday Budgeting 101

It’s easy to get caught up in the magic of holiday spending. But if you’re relying on credit to make holiday wishes a reality, the magic often falls flat when your bills come due. Take the time now to create a holiday budget and avoid a post-holiday spending hangover.

The best thing you can do to curb your holiday spending is to set a realistic but firm budget.

Most people spend around $1,000 on holiday merriment, according to the National Retail Federation. This amount includes gifts and holiday items, as well as spending on non-gift purchases, like family photos or special outfits for parties.

But planning to celebrate the holidays and being able to afford them are two different things. A U.S. News & World Report survey says an estimated 4 in 10 people plan to go into debt to finance gifts and travel.

To create a holiday budget, start by looking at what you spent last year. Consider the impact that spending had on your budget—for instance, were you paying off credit card bills for months after the holidays? Did you have to skip the family summer vacation because Christmas was too expensive?

Be honest about the trade-offs that you’re making with your current holiday spending. That will strengthen your resolve to stick with a budget this year.

As you create a budget, look at each individual expense. Try to be as comprehensive as possible. Think about:

• Gifts for immediate family
• Gifts for extended family
• Gifts for friends, neighbors, and coworkers
• Travel expenses like gas, flights, and hotels
• Food and party supplies
• Christmas cards
• Postage and shipping
• Gift wrap supplies
• Interior and exterior decor

Add up what you plan to spend and determine whether or not that spending fits inside your budget.

Choosing an appropriate budget may mean you need to celebrate in a different way than in years past. If this is true, have an open conversation with loved ones and let them know you need to opt out of traditional gift exchanges.

Or arrange with family to do gifts of time and service instead of physical gifts. This isn’t as exciting for younger family members, but older ones may appreciate help with decluttering or organizing spaces in their home, sifting through family photos, or another project.

Spending money on someone or something in the past doesn’t mean you must spend the same amount forever, especially if you have to go into debt to do so.

Getting organized with your gift giving can help you take advantage of holiday sales and get the best prices on items. Keep track of your gift list and spending (there are apps for this!).

You can also try an app to find the best price on popular items. Or, check prices between a few of your favorite online shopping sites. A few minutes searching can save you lots of money.

If you plan to shop at brick-and-mortar stores, set aside a dedicated day for shopping instead of lots of little trips. This saves money on gas and helps curb impulse buys. Think through your driving route ahead of time, too.

When you’re finished shopping, stop looking at fliers, email promotions, deal websites, and in-store sale signs. That way you won’t be tempted to buy whatever amazing deal pops up next.

If you use a credit card with rewards points or cash back, the holidays are a great time to put those perks to good use.

This feels like “free money” you can use to purchase gifts, pay for travel, and more. Your card may even offer additional rewards or cash-back bonuses for spending at certain stores or categories. If this aligns with purchases you’re already planning to make, why not take advantage of it?

If you’re in the market for a new rewards credit card, the holidays can be an ideal time to sign up. Many rewards cards come with bonuses for hitting a certain spending amount in a designated time period. But remember, while higher holiday spending can help you hit bonuses that may otherwise be a stretch, only spend what you can reliably pay off before interest hits. Spending money you can’t afford to rack up rewards isn’t a bargain in the end.