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6 Steps for Creating a Holiday Budget


The holidays are a time of giving — and also spending.

This year, the majority of Americans we recently surveyed (60%) said they will be making sacrifices to their financial plan in order to prepare for holiday spending.

In a desire to give freely, some people end up spending more than they intend to on holiday gifts. One survey found that more than half of Americans feel pressured to overspend during the holiday season. Even worse, these people often pay for gifts with credit cards, which can lead to financial stress when the bills pile up in January.

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Avoid a Holiday Spending Hangover

The key to not overspending during the holidays is creating a holiday spending budget and then sticking to it. Here are six tips to help you create your holiday spending budget and avoid a holiday hangover next month.

1. Create a list of all your holiday expenses.

When they think of holiday expenses, most people think of gifts. While these may comprise the bulk of your expenses, you might also incur other additional costs at this time of year.

Holiday decorations, travel, parties, entertainment, cards, wrapping paper, food and shipping charges for sending gifts are just a few examples. Extras like these can really add up so be sure to factor them into your holiday spending budget.

2. Set a holiday spending limit.

Determine the total amount of money you want to spend on all of your holiday purchases, including those listed above. Write this figure down and put it in a prominent place where you will see it often. This way you’ll be reminded of your spending limit every day during the holidays when it can be tempting to want to overspend.

It’s important to be realistic when setting a holiday spending limit. This starts with understanding your overall financial situation, including your current income and debts. If your income is down this year and you’re already carrying a consumer debt load, it might be smart to scale back your spending to avoid possibly going further into debt.

To take a look at your complete financial picture including income, spending habits, debts, and investments, download Personal Capital’s free financial tools.

3. Create a detailed shopping list.

Start by deciding who your family will — and won’t — buy gifts for this year. For many people, this is the hardest part of creating a holiday spending budget. You don’t know who you should buy for and who you shouldn’t. For example, are you buying gifts for your kid’s teachers? What about sports coaches? Babysitters? Once you’ve narrowed down your list, set a spending limit for each person. This is especially important when buying gifts for children, which is where parents can often go overboard.

If there are people who you have to remove from your gift list, consider giving them gifts that cost little or no money instead. Gifts like baked goods and handmade ornaments can be just as meaningful to recipients as items purchased at a store, especially if your kids had a hand in making them.

4. Keep track of your spending as you shop.

This is often the most important step to sticking to your holiday budget. Write down or enter into a spreadsheet each holiday item you purchase and subtract this amount from your spending limit. Don’t forget to include non-gift expenses like those listed above.

Also take advantage of personal finance apps like Personal Capital that can help you keep track of your holiday spending. These apps make it easy to categorize your holiday purchases and stay within your overall budget.

5. Use credit cards wisely.

Paying for holiday purchases with credit cards instead of cash might be convenient, but it can also lead to over-spending. Try to avoid racking up big credit card bills during the holidays that will be difficult for you to pay off in January. Instead, try making more of your purchases with cash or debit. And if you do use your credit card, be sure that you are tracking them carefully to make sure you’re not exceeding your holiday spending budget.

6. Start saving now for next year’s holiday shopping season.

Imagine if when the 2022 holiday season rolls around you have already saved up enough money to do all of your holiday shopping! It’s possible if you start putting aside money now for this purpose.

For example, let’s say you want to spend $1,000 on holiday purchases in 2022. If you contribute about $84 each month to the account starting in January, you’ll have this much money saved and ready for holiday spending by next December. Best of all, you won’t have to charge any of your holiday purchases — so you’ll avoid the holiday credit card hangover the following January.

Get Started Now

Taking the time to create a holiday spending budget will help you rein in spending and reduce financial stress during the holidays. You may also want to consider an online account as a place to safely park your cash. Personal Capital Cash is an online cash account that’s easy to use on the web or on mobile devices, and has competitive FDIC insurance coverage. There are also no hidden fees on the account, which is something that traditional bank accounts can often have buried in fine print.

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