How to Budget for the Holidays

How to Budget for the Holidays

You are probably familiar with the theme. The holiday season approaches and you tell yourself that, no matter what, you will not overspend this year. You pick some arbitrary number as a budget and, at least in the beginning, you watch every penny. However, as the weeks go by and the stress builds, you’re overcome by the madness of last minute shopping for presents, food and decorations. Four weeks later, the blur of the holiday season comes painfully into focus as you review your credit card bill, which you will be paying for the next four months. It’s a vicious cycle that seems to repeat itself every year. It doesn’t have to be that way.

Holiday Joy vs. Holiday Pain

Rather than reliving the past holiday season with regret, you can joyfully put a period at the end of it by planning ahead with some very basic budgeting. By budgeting well ahead of the holiday season, you can do more to prepare financially for what is one of your biggest expenditures of the year. If you know your budget 10 months ahead of time, you’ll know what your target is and you’ll have plenty of time to zero in on it leading up to a stress-free holiday season.

Establish a Realistic Holiday Budget

The logical place to start is to thoroughly review all of your expenditures from the last season. Pull up all of your credit card and checking account statements and itemize all of your expenditures, including gifts, food, travel, holiday cards, and decorations. Be sure to include any extra giving you do during the season. You also need to account for any cash purchases which tend to be made on last minute items.

With your accounting in hand, you need to determine what is a reasonable amount to spend during the holidays. One rule of thumb is to limit holiday spending to no more than 2% of your household income. For a family earning $100,000 a year, that amounts to $2,000. That at least can be a starting point around which you do some additional budget planning.

Next, you need to go through your accounting and determine where you overspent so it can be reduced or eliminated from your holiday budget. The next step is to do some holiday season planning, listing all possible expenditures, including parties you expect to give and attend, food, gifts (don’t forget all the last minute gifts you bought last year), travel, decorations and holiday cards. Just to be safe, add a small dollar amount as a cushion for miscellaneous expenses.

Pay Now or Pay Much More Later

That will give you your number. If it’s reasonable, make it your target. Then arrange your current monthly budget to find the money you need to save towards it. If your target is $2,500 with six months to go before the holiday season, divide the amount by six ($417) and start saving. Open a separate savings account or a Christmas Club account and have the money automatically deducted from your checking account. If you can’t afford the monthly savings, you probably need to reassess your holiday spending plan. Otherwise, you’ll be paying interest charges starting in January of next year.