Are you dreading the financial impact of the most wonderful time of the year? According to this survey on 2022 holiday debt, holiday spending last year averaged $1,131 per person (though just over 13% spent $3,000 or more). 65% of those surveyed paid for that holiday spending with credit cards, and by February 2022, 40% of Americans had still not paid off that debt.
With inflation on the rise, the best thing you can do to avoid the seasonal stress is plan ahead. In this article we’ll go over a few budgeting and gift-giving tips to help you plan for the celebrations with those you love, without breaking the bank.
1. The financial ghosts of holidays past. The best place to start is to reflect back on your spending in previous years. Did you have any holiday spending regrets? Any holiday debt that took more than a few months to pay off? Did your family enjoy all their gifts last year, or were there any “one and done” gifts? Understanding your spending history can help you decide whether the decisions you made were worth it.
2. Knowing how much you can spend — and where it’s going. Talk with your family about your plans this holiday season. Find out their preferences and set your own expectations around holiday events and gift giving. Make a list of those various plans and gifts and then set your budget for each category. Holiday budgeting is a great way to set limits that you can stick to, and helps you avoid caving into momentary impulse buys.
3. Saving up and sticking to the plan. Once you’ve set your budget and saved some cash, consider placing your holiday budget on a prepaid debit card earmarked for gift purchases. This is a great way to avoid unplanned purchases made on whim. When it’s time to head out to shop, leave your other cards at home and take only your Driver’s License and enough cash for gas and meals. When the card’s empty, you’re done shopping!
4. Holiday spending with credit cards. If you’re planning on using your credit card, try to avoid using cards with high interest rates. Or consider transferring those high-interest balances over to a card with lower interest payments. You can also look for common deals, such as:
a. Balance transfer deals: These allow you to transfer high-interest balances from one credit card to another. You'll be charged a fee for each balance transfer, but it may still be worth it if it helps save money on interest payments.
b. 0% interest rate promotions: Some cards offer 0% interest rates on new purchases during a promotional period—typically lasting between 6 or 18 months; this option is ideal if you have good credit and can pay off the full balance before the promotion ends.
c. Rewards Cards: Some cards offer extra rewards earning on certain spending categories or with select retailers. Think about where you plan to spend on gifts and other holiday expenses and see if your existing cards offer bonus rewards on those purchases. For example, if your plans include traveling this holiday season, booking flights and a hotel on a travel rewards card can help you build up points for a vacation next summer! Or if you prefer cash in hand, cash-back cards can put some of your holiday spending back into your wallet.
5. Shopping local. With your list in-hand, shopping online is convenient and may help you find the best price for what you need. But consider making your purchases locally. You’ll find that many local businesses have a price-match policy if you find a better deal elsewhere. And doing your holiday shopping with small businesses in your area is just another way to get what you need while also supporting those businesses in your community.
6. Staying accountable. If you’re the kind of shopper that can be easily swayed by the opinion of others (such as your children), you may want to find time to shop alone. Conversely, if you have little personal willpower when it comes to overspending, take along a shopping buddy that can help hold you accountable to your budget. Make sure you set your spending limits before you leave home.
7. Get Creative - Some of the best gifts aren’t wrapped. Gift giving is a celebration of the times and a show of appreciation for those you love. Some of the best holiday gifts are not always those purchased, they’re made. Consider giving hand-made gifts like an album filled with photos from the year, a painting, or an ornament. Home-made gifts from the kitchen are also a hit. Another great idea is gifting your time. Home-made “vouchers” can be redeemed throughout the year for things like breakfast in bed, a chore pass, hugs, “me” time, a pillow fight with the kids, or a night out. And finally, consider organizing family and friends for planned time volunteering. It’s another great way to spend time together—and in the spirit of giving, give back to those in need.
All this to say, with some careful and creative planning you can give from the heart while sticking to your budget avoiding the financial stress that sometimes comes with the season. And if you can stick to your budget over the holidays, you can stick to one year-round and that newfound financial discipline will be a gift that keeps on giving.
