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How to Create the Perfect Christmas Budget for You

Saving for Christmas can be daunting, but a good budget will set you up for success.

October 31, 2022

Whether you’re reading this in December or February, there’s no time like the present to start saving for the holiday season. For many, the holidays can be a stressful period that adds to existing financial pressures — but by mapping out your Christmas budget ahead of time, you can put yourself in the best position possible. That means more tranquility and joy through the season.

We’ll give you a complete guide to budgeting for the upcoming Christmas season, including why it’s so important to create a budget and what the average American spends in the lead-up to the holidays. Then, we’ll give you our top tips for reducing your expenditure (without sacrificing the magic of the festivities).

Why budgeting is important 

Budgeting helps you take control of your finances by giving you a roadmap. No more spending on a whim then worrying whether you have enough in your account to cover the rest of the month’s expenses — you’ll know exactly what you can afford.

In the case of Christmas spending, a budget means you can ensure your gift giving remains within your means. Perhaps most importantly, it prevents you from overspending and falling into debt later.

It’s common to overspend during the holidays and fall into debt, meaning you’ll have to spend the new year playing catch-up. Credit card debt can be particularly tough to pay off due to high interest rates that compound, meaning you’re left needing to pay off more than you borrowed initially. 

Buy now pay later (BNPL) loans can cause similar issues if you fail to stick to your payment plan.

Though Christmas presents and holiday shopping are fun, they should not come at the expense of your financial wellbeing.

If you don’t have enough money to cover your Christmas gift ideas without going into debt, the best option is to start to save money as soon as possible to boost your chances of a debt-free Christmas.

How much do Americans spend at Christmas?

Many of us spend more than we anticipate on Christmas shopping. If you've never put together a Christmas budget before, these holiday spending statistics may shock you.

In 2021, the average American planned to spend $998 on holiday gifts, food for their Christmas dinner, decorations and other holiday-related purchases. Across the nation, that worked out as $843.4 billion of holiday retail sales.

In 2022, one in three Americans said they had overspent during the holidays last year. More than a third borrowed money to fund their activities, with an average debt of $1,249.

Everyone's situation is different. You may want to spend more than $998 if you have a huge family, or you may opt for low-key celebrations. But even if you only plan to do a bit of gift wrapping for your closest family members, you might be surprised at how high your total spend is once you consider extras like sweet treats, alcoholic beverages and festive excursions.

No matter how much or how little you think you spend, the only way to be sure you’ll stay within your means is by creating a Christmas budget and sticking to it.

How to formulate a Christmas budget 

Ready to start setting your gift budget? Below are a few steps to figure out how much extra money you need for your Christmas savings. 

1. Determine your spending limit

The average person might spend $998 on the holidays. But how much do you spend?

In an ideal world, you’d have some record of what you spent on Christmas in previous years, in which you can simply take this figure and move on to step two. If not, you’ll have to make an estimation.

Consider looking at your bank and credit card statements from last year to see the total dollar amount you spent. The answer might surprise you.

However, remember that costs may go up from year to year due to inflation, so you should add a bit of cushion from your previous expenses. In the U.S., inflation was above 8% between August 2021 and August 2022.

Alternatively, you can make an estimate based on who you plan to buy gifts for and how much you intend to spend on them. For instance, you could set a limit of $50 for immediate family and $25 for extended family or friends. Don’t forget about any extras, like the secret santa with your colleagues and grocery shopping for the celebration.

2. Work out your weekly savings goal

Let's say your target figure for holiday spending is $800. Your next step is to figure out how much you need to save, and for how long, to build up that sum.

Depending on how far ahead you’re planning, you may have a few months or an entire year to come up with the cash. You will need to look at your current spending habits and incorporate that money into your weekly expenses. 

For instance, if you start saving in August, you’d have four months to come up with an extra $800. That works out to roughly $200 per month or $50 a week. It is much easier to save $50 a week for eight weeks than to come up with $800 in 25 days if you start on December 1. For this reason, you should start saving the money for your Christmas budget ahead of time. 

3. Budget for your savings goal

Your next step is to figure out what your current income and expenses are so you can fit your savings goals into your budget. If your monthly after-tax income is $3,000 and you spend $2,700 on your monthly bills, loan payments and other expenses, you’d have an extra $300 available to save each month.

Based on the above example of needing to save $200 per month, you can simply add that line item to your budget.

But if your income only just covers your current expenses, something has to give. That means either running a tight budget to come up with the extra money, cutting down your holiday season spending or picking up a side hustle to bring in extra cash.

4. Track your budget

It would be great if you could simply create a budget to spend X amount of money per month and magically spend exactly that. But we’re humans, and it’s easy to slip up if you don’t track your spending or exercise some discipline to keep yourself on track.

First, you need to choose a way to keep track of your budget and spending. You could do this using pen and paper, but opting for a budgeting app is generally more efficient and accurate since many apps can automatically sync with your bank accounts.

Then, check your budget every week to see if you’re in line with your targets. If you fall behind, you can make it up in the next week or month.

Consider setting up a separate savings account you can use to put aside the money for your Christmas gifts. This means you’re keeping the money separate from your regular spending money and won’t be tempted to use it for something else.

Extra tips to budget effectively 

Making a Christmas budget is easy, but smoothly saving the amount of money you need and keeping your spending low is tough. Here are a few final tips to help you through.

Avoid getting into debt

If your budget is tight, try to spend only using cash or a debit card. Using a credit card, personal loan or BNPL loan means you risk accruing interest if you can’t pay off the balance in full. 

Plus, if you withdraw the exact amount you’ve budgeted for in cash from an ATM, you’ll know exactly when your Christmas money has run out. The same thing applies to a debit card linked to an account you set up especially for Christmas savings.

Scale things down

If you’re the type of person who spends all year looking forward to Christmas, you may not want to compromise on the celebration. But if you’re feeling pressured by your coworkers, friends and family to exchange gifts with everyone when you’d secretly prefer to pay down your debt or go on vacation, it may be time to start saying “no” and doing what’s right for you.

Besides, there are ways to have a successful holiday season with loved ones without going over the top. If you struggle to meet your holiday budget, consider suggesting alternatives.

For instance, you could propose a gift exchange with everyone in your extended family so you only need to purchase one gift. Or, you could suggest a scaled-down Christmas to family members or skip on things like Christmas cards and wrapping paper. Why not wrap gifts with newspapers instead?

Finally, consider making homemade gifts to save money. 

Set yourself up for a happy holiday

It's never too early to start crafting your Christmas budget. The earlier you begin, the more time you'll have to save cash for the gifts you intend to put under the Christmas tree. 

But if you happen to overspend on your Christmas budget (or you’re still playing catch-up from last year), there’s a way out of debt. The Tally† credit card payoff app takes your high-interest credit card debt and turns it into one lower-interest line of credit. Plus, it gives you a single due date for your monthly payments, removing much of the hassle of credit card management. 

To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.