At this point it’s a cliche to point out how stressful the holidays can be. If you’ve ever had to pinch pennies or take on debt just to make it through to January, you know what I’m talking about. It feels like the whole world collectively decides to go broke at the end of every year.
So why don’t people do more to reduce the stress of holiday spending?
The easiest and most effective way to do that is by creating – and sticking to – a holiday budget. Here are some effective techniques to reduce and plan for holiday expenses.
Discuss Gifts and Plans Now
Now that the holiday season is looming, it’s time to round up the friends and family you typically exchange gifts with and talk about your plans. This is the best time to ask if they’d be open to eliminating or minimizing presents, since it’s likely they haven’t bought any yet.
That may sound like an argument waiting to happen, but here’s the thing – if you really want to spend less on gifts this year, this conversation has the most potential to make an impact. You’ll probably find that people are surprisingly open to the idea of cutting back, but never spoke up for fear of upsetting the status quo. If you consistently struggle to make ends meet during the holidays, chances are some of your friends and family do too.
If your family traditionally goes all-in on gift giving, ask if they’d like to draw names out of a hat instead of buying presents for everyone. You could also adopt a rule that only kids receive gifts during the holidays, not adults.
It’s also perfectly acceptable to simply not participate in holiday gift giving if you’re truly struggling. Sending out an awkward text or email is better than paying 25% interest on your credit card bill because you wanted to seem generous. Just make sure you give everyone a heads up, so they know to leave you off their shopping list.
If anyone gets upset, try to communicate your situation clearly and honestly. Explain why other financial obligations are a higher priority for you, and never let anyone guilt you into spending more. A shocking number of generous gifters use credit cards to fund their holiday expenditures, going into $1,054 in debt on average. Better to be a financially stable Scrooge than a bankrupt Saint Nick.
Make a List
Sit down and brainstorm all the presents, potlucks and gift exchanges you’ll be participating in. Every extra item you buy for the holidays should be on your list, even if it only costs $10. Those small expenses can pile up faster than the presents in Santa’s sleigh. Don’t forget to include the following:
- Office Christmas party
- Any extra tip you leave for service workers, including babysitters, delivery workers, hairstylists, dog sitters and more
- Holiday travel, including gas, lodging and food
- Christmas photos, stamps and greeting cards
- Decorations including the tree
- Specialty foods
If you can’t remember what you spent last year, go through your bank statements and credit card bills from this past winter. When planning ahead, include Halloween and Thanksgiving, as those two can also add up. Look over your spending for categories like groceries and gas, since people are likely to spend more on food and travel during the holidays.
Create a Budget
Now that you know how many gifts you need to buy and how much travelling you plan to do, it’s time to draft a budget for all those expenses. Next to each separate event, write down your best guess on how much it will cost.
You might be tempted to underestimate, but it’s actually better to give yourself a little leeway and end up pleasantly surprised when you come in under budget. There’s nothing more depressing than fretting about your holiday credit card statement while you’re trying to enjoy the company of friends and family on Christmas Eve.
Once you know exactly how much you have to spend on the holidays, compare that figure to your current monthly spending. Do you have enough left over or do you need to make concessions, like giving up monthly manicures or bringing your lunch in to work?
If the numbers don’t add up, you might need to find a temporary side hustle or reduce your number of holiday obligations.
Set Up a Holiday Savings Account
Now that you have your number in place, it’s time to set up a place to stash that holiday budget. I always recommend having a separate savings account for short-term goals so you don’t accidentally spend the money on something else.
You can manually move the money over to your new account or create an automatic transfer. Once the holidays are over, you can keep the account and put a little money there every month so you’ll be better prepared for next Christmas.
Use a Rewards Card
Be conscious of what credit card you use every time you shop for the holidays, since you might be eligible for significant cash-back rewards and points. For example, some cards offer extra cash-back when spending money at department stores and online retailers. Others are great for gas, restaurants and grocery stores.
If you have a good credit score and aren’t saving for a house or other major purchase, consider applying for a new credit card to earn a sign-up bonus. Most cards require that you spend a big chunk, usually $500 or more, to earn a sign-up bonus. That can be easily accomplished during the holidays. If you would need to spend more than you budgeted in order to receive the bonus, don’t sign up.
Check out your current credit card rewards to see if there are any points you can use to redeem for holiday gifts. Most credit card providers allow users to trade in points and miles for gift cards, which you can then use for holiday shopping. If you have enough rewards, you might even be able to bring your holiday cost down to $0. Now that’s a Christmas miracle.