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Here’s How Much of Your Income You Should Really Be Spending on the Holidays

Rebecca Jones  |  December 8, 2021

Here’s a look at exactly what you should be spending (or not!) this holiday season. 

‘Tis the season to be merry. And spend money — a lot of money, according to the National Retail Federation. We get it — during the holidays you travel more, you shop more, you host more, you decorate more, and you eat more. All of which can add up to your budget taking a direct hit from Santa’s sleigh.

But what is a reasonable amount to spend during the holidays? And what are the best ways to keep your budget in check, and know when you’re spending too much?

Spend What Your Budget Allows for the Holidays 

Some financial experts say that 1% of your income is an acceptable amount for holiday spending. But considering that some people may have more discretionary funds than others, it’s hard to put an exact percentage on what your holiday spending should be. “It’s best if you think hard about what amount of holiday spending is appropriate for you,” says Jesse Mecham, Creator and Founder of the YNAB App. Look at your budget, determine an amount that works for you, and decide what amount you want to spend, he says. Another approach is thinking about your holiday spending all year long—or at least thinking about it enough to set aside money for it throughout the year. “I suggest that people save for the holidays all year long,” says Smart Shopping Expert Trae Bodge. Base the amount you need to save on a list of recipients and how much you typically spend per recipient. Compare this amount to how much you can afford to sock away each week or month, based on your budget, Bodge says. “If you can afford $10 per week, that gives you almost $500 to spend on holiday gifts,” she says. 

Include All Holiday-Related Expenses in Your Budget

Be sure to include ALL the other holiday related expenses in your budget such as decorating, dining out, and travel expenses in addition to gift purchasing. If you decorate for the holidays, you’ll want to factor this into your budget as well, says Bodge. But keeping the cost down in this area is certainly doable. “I always recommend that people buy things that they can re-use year after year,” she says. Décor should not be a big, recurring expense each year. And if it is, and it’s putting pressure on your budget, it’s time to scale back. “You certainly don’t have to have as many lights as your neighbors,” she says.   

Signs That You’re Spending Too Much

Going all out for holidays is fun, but not if you have to pay down debt for years to come. You shouldn’t spend any amount that will become a financial burden to you, says Financial Planner Bobbi Rebell, Host of the Financial Grownup Podcast and Co-Host of the Money with Friends Podcast. “If your holiday spending impacts your ability to pay for other priorities, like your debt, or your regular bills—and yes, your savings and investments—then you’re spending too much,” Rebell says. 

Essentially, if you’re carrying debt from your holiday purchases into the New Year, then you’re spending too much, Bodge explains. If this happens, you’ll want to work to pay that off as quickly as possible and then make the necessary tweaks to avoid that in the following year, she says. “For example, if you exchanged gifts with all your siblings, aunts, uncles, cousins and parents, suggest drawing names or just agree that only the kids receive gifts,” she says. You might even be surprised that many of your family members will be relieved that you suggested it! 

Also, keep in mind that something as feeling bad about your spending may be one of the best ways to know if you’re overdoing it, offers Mecham. If you’re hitting your other financial goals and not in debt (or at least paying it off in a reasonable rate), then spending $300 shouldn’t make you feel bad, he says. 

If You’re Paying Down Debt During the Holidays…

The amount you have to spend on holiday purchases may be small, and this is perfectly fine, especially if you are paying down debt this year. “It’s important to keep in mind that few people would feel good about receiving a gift that was financial stretch for the giver,” says Rebell. After all, it truly is the thought that counts, not the size of the gift. “If you are in debt to the point where you are falling behind on your monthly payments, it’s time to ask for a break over the holidays so you can catch up,” says Bodge. Your family and friends will understand. And don’t forget that if someone asks you what you want for the holidays, it’s perfectly acceptable to ask them for a contribution toward your student loans or credit card debt instead of a gift, says Bodge. 

Plan Ahead for Next Year

In January, set aside 20 to 30 minutes to reflect on your holiday spending in 2019, then decide on your budget for the upcoming year, says Mecham. This is the time when you decide if you will spend the same amount, or less or more. “If you set aside time to think about it for a moment, then you’ll know all year long that you’ve got the Christmas bill coming up,” he says. This is certainly a better option than paying the holidays down on a credit card for the next three (or more!) years.  

Consider Alternatives to Spending 

There are countless activities that don’t involve money but still allow you to make the most of the holiday season. “Go build an igloo with your kids,” suggests Mecham. Or consider serving at a soup kitchen or shelter this year with extended family or friends in place of giving gifts. “Serving together is certainly more rewarding than walking through a mall,” he says. If you think about the things that you are good at, such as assembling furniture, gardening, or babysitting, then you can offer your time or services to others instead of purchasing gifts, says Bodge. “Or if you really want to give something, bake, make jam, or hand-make something,” she says. Corporations may have convinced us that the holiday season is really the season of spending, but we all need to remember that it’s really the season for giving, whatever that gift—big or small—may be. 

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