The holidays can put a financial burden even on the savviest of shoppers and savers. But taking time to plan your purchases can help you avoid the stress of overspending on impulse buys. The holidays shopping season seems to get longer every year, with more opportunities for you to spend money on yourself or your loved ones. Before you browse the newest Amazon toy catalog or shop for Black Friday deals, keep reading to learn how to make a holiday spending plan that works for you.
1. Set a budget
To start making a holiday budget, first make sure you account for all of your typical monthly expenses so that you don’t come up short on bills or things like rent. Next, think about what other unusual expenses you may have in the coming months. Are you hosting a party at your home, or traveling to visit family or friends? If so, estimate what those things will cost you. Being realistic about your budget will help make sure you don’t overspend.
Once you’ve subtracted these expenses from your usual income, you can think about how much you have left to spend on gifts. Don’t plan your holiday spending on potential or future income, like your tax refund, which is unpredictable and may take weeks or even months to arrive. You might need to think about ways that you can cut back now on other types of regular spending (such buying clothes or dining out) so that you can put more money toward your holiday spending.
This basic budgeting worksheet from the CFPB is a great place to start.
2. put aside money
The earlier you can start planning your holiday budget, the better. If you have more than a month before you need to spend money on gifts or travel, you can look at how much you’ll earn between now and the holidays and calculate how much you can save to cover your holiday spending.
Once you have set your total holiday budget, you can use this Savings Plan tool to break down exactly how much you would need to set aside each week to achieve your goal. Think about setting aside your holiday savings in a separate account or even as cash so that you are less tempted to use it for other expenses. Many banks offer low-cost Holiday Savings accounts that will even pay a little bit of interest on your money.
3. Make a list and stick to it
With all of the excitement of the holidays, it can be easy to get carried away. Make a list of the gifts you intend to buy and write down how much each one will cost. Check your list several times so that you don’t leave anything off. Add up your total gift cost and make sure that it stays within the budget that you set.
Whether you shop online or in person, make sure to compare prices between different stores and watch for special sales on the items on your list. Start monitoring and comparing prices early so that you can tell whether Black Friday and Cyber Monday deals are good or not.
It is helpful to have a personal rule for your spending, such as: If something isn’t on your list, don’t buy it. This can get difficult when you see sales and deals pop up—but spending on something you don’t really need can make it difficult to pay for the things you do. Instead, make a note of the product, where you saw it and how much it was. Consult your spending plan, and, if there’s room, return later to buy the item.
4. Get creative
Think about creative ways that you could mix up your gift-giving routine while also saving money. For example, you might suggest a gift exchange where each person selects one other person to buy a gift for. This approach could work especially well for a group of adult friends or family members.
There may be other ways to give a meaningful gift at a fraction of the cost as buying something from a store. Here are a few creative and low-cost suggestions that might work for some people on your list:
- Homemade mixes in a mason jar, such as hot chocolate, bean soup, or cookie mixes
- Your favorite recipes or photos in a custom picture book
- Offer a service, such as cleaning, babysitting, or cooking a meal for a loved one
5. Decide how you’re going to pay
Are you going to use cash or credit cards to pay for gifts? A helpful rule to set for yourself is to only bring the amount of money you plan to spend. That way you can help yourself stay within your budget because once you spend the money you brought, you’re done. Using cash can also help you avoid potentially costly fees or interest from debit cards, credit cards, layaway, or store financing.
On the other hand, using a credit card can give you more consumer rights if the item is broken when you open the box. It also gives you more security compared to traveling with large amounts of cash. If you do decide buy your holiday gifts with a credit card, make sure you have a specific plan to pay your credit card bill and have set aside enough money in your budget to do so.
6. Track your holiday spending
Just like you wrote down your lists to keep track of what you need to buy, you could also keep track of what you’ve spent. Periodically check to see if you are on track and sticking to your budget. Did you spend more or less than you thought you would on certain items? How much of your budget is left for the things you still need to buy?
You can use this spending tracker worksheet from the CFPB or create your own system for tracking expenses with spending categories that match your lifestyle. If you don’t keep track of what you spent, you could end up with an unpleasant surprise if you exceed your budget and wind up short on cash for groceries, utilities, or rent.
Tracking your holiday spending can also help you set a realistic budget for the next year. If you had any money left over in your holiday budget, consider setting it aside to begin your holiday savings for the next year or use it to grow your emergency fund.
Looking for more information?
This article was adapted from free resources available from the CFPB at https://www.consumerfinance.gov/. Check out their many other resources and ask your own personal finance questions at Ask CFPB.
