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How to Create An Effective Holiday Budget

Lindsay Tigar  |  November 1, 2019

Start early, be cutthroat — and other advice to stay well within your means during the happiest (and most expensive) time of the year.

The holiday season centers around celebration, togetherness… and, yes, lots of spending. From the expense of jet-setting to and from hometowns, purchasing gifts for those near, dear and far away, to attending one party after another, credit card bills can offer a fright to mirror Halloween when they show up in our mailboxes come January. 

But here’s the deal: Though you may love this magical time of the year, the holidays aren’t an excuse to forget about our spending caps. In fact, it’s even more important to set boundaries and limits when temptation is high. The key to sticking to our guns (and not overdrafting our accounts) is to make ourselves an effective — yet also realistic — budget specifically for the holidays. 

Here are a few that work for us:

Make a list and track all your gifts in a spreadsheet.  

Perhaps Santa said it first, but the jolly old fellow was right: It’s important to make a list, check it twice, and then track it. Though we would all like to give a little something to everyone, it’s important to think critically about what we can afford. Budgeting expert Shirley Luu suggests writing down everyone we’re considering shopping for, and then taking a pause. Return to the document the next day and see if there’s anyone that can be omitted. A fresh pair of eyes will help us understand who is essential, and who isn’t. Once your list is pared down, assign a dollar amount to each person. This will serve as your budget — and should be kept top of mind when browsing in-store or online. Luu also suggests following the same practice for events — add holiday parties, fundraisers, etc. to your same list — so all expenses are stored in the same place.

Keep in mind: Numbers don’t lie.  As financial coach and host of the radio show ‘The Millionaire’s Roundtable’, Lynn Richardson explains, when you boil it down, a budget is a simple math problem. “One plus one equals two. If your stuff adds up to ten, it will never fit in and you will be frustrated and broke. The key is to make sure your spending fits into the math that aligns with your budget,” she explains. With a living-breathing document, you can make adjustments — if you happen to spend $5 over for someone, you can spend $5 less on someone else and stay on target overall. 

Have frank conversations with your loved ones. 

Relationships — whether romantic or platonic — are some of the most special investments we can make to benefit our health and emotional wellbeing. That being said, expressing how much someone means to us doesn’t equate to a particular price tag. In fact, for those friends and partners who we have known (and loved) for years, we’re probably running out of ideas for physical tokens of appreciation, anyway. That’s why CNBC senior personal finance correspondent Sharon Epperson suggests having a frank conversation with our nearest-and-dearest about holiday gifting expectations. This ensures you’re on the same page, but also tees up a discussion about whether you’d rather skip gifts in lieu of cards, or perhaps, book quality time together instead. “Consider paying for the other person’s ticket to a concert or comedy show, or cooking a special meal together. Engaging in experiences instead of exchanging traditional gifts can help keep costs low,” she recommends. 

Or, if you’d prefer to give in the traditional way — Epperson suggests a gift exchange or Secret Santa instead.  It not only works with friends and family, it’s a lifesaver if you have work environments where colleagues feel like family, too.  

Be savvy with credit cards.

Running up a credit card balance around the holidays can create a hangover you’re still dealing with come February.  But using credit cards strategically for cash-back perks or travel rewards is a savvy way to cut back on holiday spending. As Greg Mahnken, a credit industry analyst at Credit Card Insider, explains, various cards sometimes offer deals if we spend a certain amount in a given time frame, or on specific purchases. 

Just make sure you keep the perks in perspective. “You should never spend extra on your credit cards just to earn points or rewards. You should only spend what you can afford to pay off in full every month,” Mahnken reminds.

And if you’ve been racking up points or rewards that have been sitting unused for years?  You won’t likely get as much value per point as you would from using them for travel, but you can often convert points into dollars you can use to shop at a variety of merchants.  And, if you have recipients with wanderlust on your gift list, a coupon for enough miles to get them somewhere fabulous (and, of course, home again) is sure to be appreciated.

Save room for incidental expenses.

When most people first consider a ‘holiday budget,’ our minds go directly to gifts. But as financial expert Jim Brown explains, gifts only account for a fraction of what we actually spend during the holidays. We also spend more on special holiday foods, cocktails, decorations, gas, flights and hotels.  The key for all of these ‘extra’ expenses is planning ahead. To ballpark them, Brown recommends looking back on statements from last year to inform this year’s budget. 

Finally, don’t forget shipping.  If you’re not in there in person, you still want your gifts to be — and in a timely fashion.  As shopping and trends expert for RetailMeNot, Sara Skirboll explains, plenty of sites offer free shipping and around the holidays, and it may make the most sense to just have your gift shipped to the recipient. “Mailing gifts can be a major expense for holiday purchases, especially if you are late to the game or planning on sending items to loved ones far away,” she says.   

And while we can certainly pack all our gifts in our suitcases when we head home for the holidays, airlines have become more strict with baggage allowances, and paying for an oversized bag is expensive. Shipping your items to where you’re celebrating can help you avoid frustration at check-in.

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