How to Set (and Stick To!) a Christmas Budget

The Holidays are here! Along with all of the time with friends and family, Hallmark movies, and cookie eating, the holidays tend to bring with them a big hit to the wallet. This year, it is predicted that holiday spending will average $1,463 per household. Between travel, decorations, food, drink, entertainment, and of course, gifts and you might find your bank account looking pretty sad come 2022. In fact, the average debt racked up over the holidays is $1,381.

If you’re reading this, chances are you haven’t been saving and planning for the season all year (if you have congrats! You’re way ahead of most of us). Without saving and planning, you could be on course to have most of your holiday spending be sourced from debt. Below, I’ll cover options for setting your Christmas budget and tips on sticking to it.

How much can you afford to spend on Christmas?

Before whipping out the credit card and running wild on Black Friday, it’s a good idea to have an answer to this question. Personally, I’m quick to just think “nothing” and move on. But, I know I’m going to be spending money so I need to have a plan.

A good place to start is with the average spend per household. If you spent $1,463 on Christmas this year, what would your finances look like in January? What would you be giving up in order to afford that $1,463? For me, if I spend the average, that’s two snowboarding trips or my planned wine tour in Georgia (the country) that I’d be giving up. Hard no on my end.

I’d prefer to carve out spending for Christmas from my standard monthly budget. If you read this blog regularly you know that my budget is 40/20/20/20 – needs/wants/travel/savings, respectively. 

A good goal, in my opinion, for a holiday budget is 10% of take-home. This will be significantly more if you need to travel. The holiday travel grind is a nightmare, you spend so much more money on the flight just to inevitably suffer through delays and crowds on unhappy people. Because of Covid, I’m living near family these days, but for those of you headed towards Christmas travel, I’m so sorry. Also, buy your flight early.

How to source 10% of take-home

That 10% goal needs to come from somewhere. The choice is pretty simple, either cut back in other areas or throw it on a credit card and pay off that debt at an average 17% APR. I’ll take the former, thank you very much.

For my own plans, I’ll take 5% from wants and 5% from travel. I only need to buy one flight next month (Steamboat and champagne powder in late January!!!) so I wiggle room in the travel bucket. I’ll need to find areas to cut back on wants though. For me, this means eating out, personal shopping on Black Friday and my random Amazon impulse purchases all need to be cut out. 

I recommend you do the same with your budget. Which areas are you going to pull your Christmas budget from and what will you cut out to cover those? Again, shoot for 10% of take-home. Depending on how you celebrate the holidays, you may need more or less, but have a plan for how much to spend and how you’ll cover it without going into debt.

Decide how you’ll divvy up your budget 

Now that you have a plan for how much you can spend, you need to have a plan for how you’ll divvy up those dollars. Here’s my recommendation:

10% set aside for cushion. Things inevitably come up, someone will come into town, or work will decide to do a white elephant, whatever the surprise, be ready for it.

60% for gifts. If you’re like me, this is the fun part of Christmas. I have a huge family so I only buy for the kids. That still represents a lot of people, but it’s so fun to get to pick out toys and supply the college students with some extra cash.

20% for food and beverages. I find this the area that’s easiest to blow my budget on. I want to bring a bottle of wine with me to every party and I have expensive tastes. I’m also an avid fan of the Great British Bake Off and the Christmas season is when I get to play around with baking what I learn from the show. Regardless, we all know we’ll be getting together with friends and family and those get-togethers involve eating and drinking. 

10% for decorations and/or entertainment. Full disclosure, I won’t be spending any money on decorations. I’ll go into that further on, but I do understand that for most people, this is part of the holiday. That being said, I love a good holiday event. If I can I’ll go to Chicago for the Christmas market or catch the Nutcracker in Detroit.

How to stick to your Christmas budget

There is endless advice on how to stick to a budget, but ultimately it comes down to what works for you. You know yourself better than anyone, so use that knowledge and have a plan in place. 

That being said, here are a few ideas to consider:

• Before you do anything, check in with yourself that your budget and how you’re divvying it up are realistic. Don’t set yourself up for failure. I recommended 10% of take-home because I think it’s a realistic amount to be able to cut back in other areas. If you need more, there’s nothing wrong with that, just have a plan for how you’ll source it. 
• Use your notes app to track your spending. Christmas spending is difficult because the usual apps don’t work. Mint, or any other budgeting app, isn’t going to be able to parse out the difference between gifts and just your regular shopping. So take note of what you’ve spent.
• Put your Christmas dollars in a specific account, or put the cash in an envelope. Once the money is gone, it’s gone. You’re done spending.

Ideas for cutting back this holiday season

There is a reason that we start seeing Christmas things on shelves in stores starting in October. Christmas is lucrative for retailers – to the tune of $1 trillion lucrative. While that may be good news for the economy as a whole, it’s not good news for our individual pockets. Especially considering that most of those Christmas dollars are coming in the form of accumulated debt.

It’s pretty hard to escape the commercialization of Christmas, and the roots of gift-giving as part of this holiday go back millennia. However, there are plenty of ways to scale back on spending and scale up on the real joys of the holiday season – togetherness and generosity.

Don’t decorate

I know for some people this is unfathomable. I definitely have family members that think I’m a scrooge. But it’s not a realistic tradition for me and it may not be realistic for you either. I move a lot and I can’t be hauling around stuff that I don’t use 11 months out of the year. 

Even if you don’t move a lot, do you really want to take care of all this extra stuff from January through November? Think of the storage space you don’t need to pay for if you don’t have Christmas decorations. 

Finally, opting out of decorations is good for the planet. By one estimate, it takes 10 years of use to offset the carbon footprint of a fake tree, and Christmas lights use up enough electricity to power 15,500 hot air balloons. 

Instead, I’d rather enjoy decorations through a stroll through a downtown area or attending a Christmas tree light. I like the idea of making decorations something to communally enjoy.

Or…how to spend less on decorations

Consider eco-friendly alternatives to traditional Christmas decorations, like using recycled materials. There are plenty of options available, such as wreaths made from old tin cans, garlands made from old phone books, and even paper chains made from newspaper clippings.

While these options might take more time, they provide an activity you can do with loves ones to celebrate. And they results and the memories will last for decades.

Let Pinterest be your best friend here, the idea there are endless.

Credit for photo goes to Glassictouch.com

Cut out some presents

How many times have you received a present that immediately went to Goodwill/the back of a shelf/the trash?

The spirit of giving is beautiful, but do we really need to give so much? I don’t think there’s generosity in giving someone one more useless thing to have to deal with. 

I really appreciate that in my family we have cut out adult gifts. There are so many of us, we had to set the budget per present low and that just left people with useless junk. In the end, we decided that we can all afford to buy ourselves the things we need, so let’s only give Christmas gifts to family members who can’t do the same – college-age and under. 

Rather than just scrooging people on present though, I think a better way to go about it is to approach present giving based on people’s love languages. If your loved one’s love language is gift-giving, sure spend some money and get them something thoughtful. 

However, for other love languages, there are other options that will be more meaningful to that person. For example:

• Quality time: go to a tree lighting together
• Acts of service: surprise them by shoveling their snow
• Words of affirmation: send a thoughtful Christmas card
• Physical touch: cuddle up and binge watch some Christmas movies

Say no

The holidays are notoriously stressful. There are so many activities, so many things to do to prepare for those activities, and all of this is wrapped in emotions around family and friends. This is amplified during COVID, where tragically many of us may have empty seats around the dining table.

Give yourself and others some space by saying no to events that add too much to your plate and wallet and by choosing not to add superfluous events to other people’s schedules. 

Events and get-togethers should be fun. If you find yourself exhausted and unhappy through the holidays because of stress, then cut some out. No need to be rude about it, most people will understand if you just say you’re a bit stretched this season.

Additionally, if you are thinking about hosting your own event, hit pause before you ask people for their time and energy. Especially with events that require special planning or extra spending, like a potluck or blind wine tasting, ask yourself if you think your guests might actually prefer to be at home watching Elf. Often times the answer is yes.

Let go of the Hallmark dream

I think most of us are hampered by the dream of a Christmas that Hallmark has sold to us. Cozy fires and egg nog with drama-free loved ones in a perfectly decorated house. 

None of that is real. No matter how much we spend on decorations, food, or presents, that crazy uncle is still going to interrupt the get-together with some unsolicited, Alex Jones-based advice and the dog is going to chew up the presents. Whatever it is, picture-perfect isn’t actually much fun.

I’ve long-held dreams of Christmases spent in log cabins in the woods where we hit the slopes and drank hot toddy’s on Christmas Eve and woke in the morning to a view of snow-capped mountains. But that’s my dream and most of my family probably wouldn’t actually like it that much.

Instead, it’s more fun to lean into reality than try to spend a cajole the holidays into the for Hallmark says they should be. For me and my family, that means potlucks and chaos and hangovers. I’ll take it 🙂

Reality.

In closing…

The holiday season is here, and in the United States, that sadly means debt accumulation. It doesn’t need to be this way. Make a budget, have a plan, and find a way to make this time of year enjoyable rather than stressful.