How To Budget for the Holidays

If the economy has you rethinking how much you’re going to spend on gift-giving this year, you’re not alone. According to a Bankrate survey, more than a third of shoppers are planning to spend less this year.

But with a little planning, the holiday season doesn’t have to break the bank. These strategies can help you develop a spending plan that will guide your budget for the holidays.

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Assess Your Finances

Before you create your holiday budget, look at the state of your finances. If you use a budgeting app, pull a report for this year. If not, take a look at your bank statements.

How does your spending compare to your income? Have you been breaking even each month or do you have a little extra to spare?

By looking at how much money you’ve spent this year, you can anticipate what your spending will look like over the next two months. Compare that to your remaining paychecks or anticipated invoices if you’re self-employed.

This will tell you how much can afford to spend on the holidays and where you might need to make adjustments in your regular budget. 

If you don’t have a budget, check out this guide to get started.

Allocate Your Holiday Expenses

Remember, the holidays aren’t just about giving gifts. These are some categories you’ll want to include in your budget:

• Gifts
• Travel
• Meals and get-togethers
• Decorations
• Charity
• Time off if you’re self-employed

Use your overall holiday budget to assign spending limits to each category. This will help you spend within your means and prioritize what’s important to you.

Add a buffer for unplanned expenses as well. This could include an unplanned gift for an impromptu white elephant gift exchange or tipping the valet at the company holiday party.

READ MORE: Take Control of Your Finances With These 5 Smart Money Tips

Develop a Holiday Spending Plan

Once you know what you plan to spend your holiday budget on, you’ll need a plan to tell you how to spend it. 

Your spending plan can include things like using credit card rewards or strategically financing large purchases.

Use cash

When in doubt, use cash. According to WalletHub, 46% of Americans are still paying off debt from last year’s holiday spending. 

Cash is the surest way to spend within your means and avoid going into debt. Use the cash envelope method (stuffing money into separate “envelopes” — either physical or virtual) to divvy up your budget across your spending categories.

Use a no-interest credit card

While cash is the best option, there are smart ways to leverage credit cards to avoid blowing through your cash all at once.

A zero-interest credit card can cover your holiday spending without putting you in debt. It allows you to break up payments during the introductory period without incurring interest.

Let’s say you plan to spend $1,000 on gifts and open a new credit card with 0% interest for 18 months. You can charge the gifts to the card and make $55 monthly payments with no interest until it’s paid off.

Before you do this, make sure your budget is realistic and you can afford to make monthly payments. If you keep a balance past the promotion period, your balance will incur interest and you’ll go into debt.

Redeem credit card rewards

Credit card rewards are a good way to save on your holiday budget. You can connect your account to Amazon to pay with cashback or book travel with reward points.

Many reward credit cards offer sign-on bonuses that can offset the cost of the holidays. If you plan on spending enough to meet the minimum spending threshold, you can collect the points and use them to cover your holiday travel.

You can also cash in rewards points for gift cards. These can be an easy last-minute way to give a gift or cover the cost of a holiday get-together.

READ MORE: How To Get the Most Out of Credit Card Points

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Look for Ways to Save

Plan your shopping around major consumer holidays like Black Friday or Cyber Monday. Make a list of things you anticipate buying and look around to see who’s offering the best deal.

If you don’t already follow your favorite brands on social media, now is a good time to do so. Many will offer holiday discount codes to their followers, giving you a chance to cash in on savings.

If you’re on a tight budget this year, look for gently used or refurbished items instead of going into debt to buy something brand-new.

Consider splitting costs to save even further. For example, if you and a friend or coworker are driving to the same area to spend the holidays with your respective families, you could carpool to lower your travel bill.

READ MORE: Best Road Trip Travel Tips

TL;DR: Keep Track of Your Holiday Spending

As you begin executing your holiday spending plan, don’t forget to keep track. It’s easy to go into debt if you don’t know what you’re spending.

Create a spreadsheet for each of your spending categories. Or, if you don’t already use a budgeting app, consider setting one up. That way you’ll be off to a fresh start at the beginning of the year!

For more tips on managing your money, check out these episodes of the Erika Taught Me podcast:

• How To Budget for Beginners
• How To Become Better With Money
• How To Set Your Kids Up Financially

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Disclosure: Opinions expressed here are the author's alone, not those of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post.