The holidays are rapidly approaching, so you’re probably coming up with gift shopping lists and planning your decorations and travel arrangements. But there’s one major task you have to do before you start making purchases: come up with a holiday budget.
According to the National Retail Federation, people spend over $1,000 on the holidays, on average. If you don’t plan for that expense in advance, it can catch you by surprise, causing you to rely on credit cards or personal loans to foot the bill.
To avoid sticker shock, follow these steps to create a budget for the holidays.
1. Look up how much you spent last year
First, look at your credit card statements and bank statements to find out how much you spent last year. Chances are, you’re underestimating just how much you usually spend on the holidays. Make sure you include purchases like gifts, decor, travel, food, and even special occasion clothing.
2. Set a spending limit
Once you have an idea of how much you typically spend on the holidays, you can set a spending limit. Think about how much money you have saved in the bank — if any — and how much extra money you have after paying your bills each month.
Ideally speaking, you should be able to pay off your holiday credit card balances off in January so you avoid interest charges. But if that’s not realistic, try to limit your spending so that you can pay it off in just a few months; you don’t want to be worrying about holiday credit card debt in July.
3. Allocate money for each category
When you have your limit, break down your holiday budget by category. For example, if you have $500 to spend during this year, you might allocate $250 for gifts, $100 for decor, $100 for food, $25 for wrapping paper and supplies, and $25 for gas to get where you need to be.
Setting a limit for each category will help you track your spending more efficiently, so you’ll know when you’ve spent your allotment.
4. Prioritize your expenses
Your holiday wants may exceed your budget. If that’s the case, you have to prioritize. Review your list and think about areas where you can cut back.
For instance, if you have young children, you may prioritize giving them gifts. If that’s the case, maybe you can have a simple dinner at home rather than going out, and you can use dollar store wrapping paper and decorations rather than spending a fortune on the more expensive stuff.
Or, if you value spending time together at the dinner table, you could spend more money on an elaborate dinner. To afford all the trimmings, you could do away with gifts or limit them to one small gift per person.
5. Use shopping apps to save money
When it’s time to go shopping, use these apps to save money and stretch your budget further:
• Rakuten: Rakuten, formerly known as eBates, is a cash back shopping app. Add it to your browser and whenever you make a purchase online, you may be able to earn cash back, which is sent to you via PayPal or check. For example, you can currently earn up to 10% cash back on Macy’s purchases. If you spent $100 on gifts, that means you’d get $10 in free cash just for using the app.
• RetailMeNot: Before heading to the store or checking out online, use RetailMeNot to find coupons. For instance, you can find a 20% off coupon for Shein, which can be a big help if you’re in search of a new Christmas outfit.
• GiftCardGranny: You can find discounted gift cards on GiftCardGranny. You can give gift cards as a gift, or you can use them to save money on your purchases. For example, you can buy a $100 gift card to The Melting Pot, a popular restaurant, for just $65 — a 35% discount.
Planning for the holidays
While the holidays can be expensive, you can prevent getting a surprise credit card statement by planning ahead of time. By looking at your past spending, coming up with a strategy, and using shopping apps, you can save money and enjoy a relaxing and festive holiday season.
If you do end up with holiday debt, learn how to repay it.
Editorial Disclaimer: Information in these articles is brought to you by CreditSoup. Banks, issuers, and credit card companies mentioned in the articles do not endorse or guarantee, and are not responsible for, the contents of the articles. The information is accurate to the best of our knowledge when posted; however, all credit card information is presented without warranty. Please check the issuer’s website for the most current information.