Roughly 15% of Americans are still paying off the previous year’s holiday credit card debt by the time the next holiday season rolls around. This financial baggage can have a lingering effect on future spending and saving.
If you’re not careful, holiday purchases can end up costing a lot more in the long run. It’s not just overeager gift buying that causes credit card balances to rise, either. Travel expenses, food purchases and decorations can likewise eat into the average consumer’s budget.
When you save for purchases and create a spending plan, your season can be a lot merrier. Here are some budgeting tips for the holiday season:
Understand your current financial situation
Knowing how much money you’ll have available for holiday expenses is the first step toward creating a responsible budget.
Take a look at your account balances and your expected income from now through the holidays. Use this information to set your holiday spending budget to understand exactly how much money you have saved and what you can afford to spend. If you have a monthly budget, you’ll know exactly how much you need for your regular responsibilities like rent and mortgage payments, groceries and utilities. While acknowledging life’s many unexpected expenses, like car repairs, you can use the additional money in your budget as a starting point for your holiday shopping plans.
If you’re considering using credit for holiday purchases, understand your plan for repayment and how your increased balance will impact your overall budget. Get a free copy of your credit report and review your overall credit profile—evaluate your credit and how increased credit card debt may impact your overall creditworthiness.
If you want to improve or maintain your score or apply for other lines of credit in the New Year, use that as motivation to spend your holiday dollars responsibly. Adding credit card debt that you cannot immediately pay off may put future borrowing at risk.
Set a spending limit
Just because you have cash or credit to spare doesn’t mean you have to spend it all on gifts and holiday treats. Try to determine a holiday budget that won’t negatively impact your daily needs or limit your ability to cover a surprise expense.
When creating your overall holiday budget, split the full budget into relevant categories:
- Gifts: You’ll need to decide whether you want to get everyone in your life a little something for the holidays or instead, focus on a few special people. Consider setting a per-person spending limit. For example, you might buy a few inexpensive gifts for some while reserving more valuable gifts for those closest to you.
- Food: Thanksgiving turkeys, Christmas hams and other staples of holiday traditions can stretch the waistband of your typical food budget. Accounting for this fluctuation can save you from a surprisingly large grocery bill.
- Donations: If you donate your time, money or gifts during the holiday season, be sure to factor those expenses into your holiday budget.
- Travel: Book holiday trips early in the season. The longer you wait to schedule a flight or secure accommodation, the more it can cost you. Making plans 30 to 60 days in advance of your trip can save you an average of up to 5% per person. These savings can be even more significant at busy travel hubs.
Make a shopping list
The average American expects to spend approximately $998 on holiday gifts, but actual spending tends to be higher. To avoid overspending, it’s important to:
- Make a budget
- Be aware of the actual cost of items vs. estimated costs
- Create a holiday shopping list
Where most plans go astray is when people buy more than they planned for specific individuals, or even purchase gifts for themselves. When you go to the store without a list or ignore your list, it’s easier for your spending to get out of control. Consider shopping online to price out your purchases before clicking the order button or heading to the store.
Keep your list at hand, and consider how unplanned purchases may impact your budget. Remaining vigilant—and sticking to your plan—can help you control your spending.
Hunt for deals
Another advantage of online shopping is the ability to find gifts on sale from the comfort of your home. Just don’t forget to stick to your shopping list. If you didn’t plan to buy an item, it’s a discount that you may be paying for later. If the deal is too good to pass up, consider removing another thing from your shopping list to stick to your budget.
When you make your original plan, you may not be aware of what items will be on sale. You should use your list as a guide, but understand that you can always adapt. If you want to get your child a new video game, use online deal sites to find the retailer with the best price. If you see something else that your child will love during the process, consider removing the video game or adapting your budget elsewhere.
Using credit cards
Credit cards are a great tool when you plan usage and repayment into your overall budget. They can also offer added security and protection from fraud.
If you don’t have the money to pay off a credit card balance that has swollen with holiday purchases, you don’t have the money for those gifts in the first place. If you can afford the gifts but would like to build credit or prefer the added security of a credit card, then using credit can be a smart decision. This way, if you do use credit cards to make purchases, you have the option to pay off the debt immediately.
Give yourself the gift of financial stability
With a sound approach to spending during the holidays, you can better enjoy your time with friends and family without incurring an additional burden of debt. Visit our resource center for more tips on how to use your money wisely.