How to Make a Budget for the Holidays in 5 Easy Steps

Everyone knows that Christmas is the busiest shopping season of the year. In fact, according to a recent Gallup survey, the average American spent $770 on Christmas gifts in 2013, and a full 26% of respondents claimed to have spent over $1,000.

However, this number just reflects money spent on gifts and doesn’t factor in what Americans are spending on “excess” items such as trees, decorations, food, travel, and activities, all of which could greatly increase the overall total.

This is a hectic time of year, and because these added expenses can catch a lot of people by surprise (after all, who would have thought that Christmas was in December?), many turn to credit cards, layaway, and payday loans to help make up for their lack of cash.

In other words, Christmas is when a lot of Americans get further into debt.

My Personal Story

And here’s a little secret: I used to be one of them. After I got married and we had our first son, Christmas was an especially wonderful time to share with my family, but we never really planned for it financially.

Sure, we planned what gifts we would give and which places we would go, but when we inevitably found ourselves without enough money to purchase gifts for everyone on our list, we didn’t give a second thought to using our credit cards.

However, one year I decided to apply the same principles that I used in business to my family finances.

Read Next: How I Used a Budget to Get Out of $22,000 of Debt

And after I ran the numbers, I realized that by overusing cards and other forms of credit, we would be stuck with Christmas debt for a very long time after the Holidays were gone and forgotten.

How so? Let’s take a closer look.

The Cold, Hard Numbers

According to this ABC News article, 60% of Americans don’t pay their credit card balances in full each month, but instead keep rolling the debt from one month to the next, and the next, and…well, you get the point.

In fact, on average, many of these Americans hold more than $11,500 in continuously rolling credit card debt, much of which might be attributed to Christmas shopping.

But if this sounds like you, how long will you keep paying on Christmas presents that you gave in the past? Let’s do some simple math:

Using’s debt calculator, if you put $1,000 worth of presents (or anything else for that matter) on a credit card with an average APR of 18.9% and make only minimum payments, it would take you 6 years to pay off the debt.

And not only this, by the time you pay it off, you will have paid more than $511 in interest. That’s more than 50% of your original debt!’s Debt’s Debt Calculator

As you can see, if you have a history of using credit cards to prop up your Holiday spending, it can add up to a lot of money over the years.

But here’s the truth: I’ve been there. I remember the stress that credit card debt caused, and I feel your pain. But the good news is that there’s a much better way to shop for Christmas presents. And truth be told, it’s not that complicated. All it takes is a good strategy and discipline (admittedly this is often the hardest part), which is what we’ll discuss next.

It May Be Simple, But It’s Not Easy

You know the real estate saying that goes, “Location, location, location?” Well, when it comes to Christmas shopping, it’s all about budget, budget, budget!

When I tell people that the secret to not stressing out over Christmas finances is budgeting, they immediately get a little scared, defensive, just plain weird, or a combination of all three. Why? Because most people hate the dreaded “B” word, because they often feel like it will put too many constraints on their Holiday happiness (although I’ll show you why this isn’t accurate in a moment). When talking about budgeting, people also become tense because they may have tried it in the past and found that it was too hard, or perhaps they simply didn’t even know where to start.

However they may feel about budgeting though, deep down they know it’s the right thing to do, just like you do. So whatever you may have experienced with budgeting in the past, I’m going to give you some bulletproof advice that will help you experience success this Holiday season. But first, let’s look at why you should budget.

The Main Benefits of Having a Budget for the Holidays

Most financial advisors agree that the number one reason Americans go into debt during the Christmas season is the failure to plan ahead, which results in spontaneous shopping habits. Sound familiar? If so, let’s go over some benefits that budgeting can help you achieve, which can go a long way toward keeping you motivated to stay on track.

As you probably guessed, the number one advantage of budgeting is that it will help you avoid going into debt, as well as paying an exorbitant amount of money in interest charges. In addition, as you continue planning your finances, you’ll be empowered to take control of your money and to avoid stress, since you’ll always know where your money is going. Budgeting will also contribute to your overall peace of mind since you won’t have to figure out how to make money appear out of thin air during the Holidays or any other time of year for that matter.

One budgeting benefit that might surprise you though is that, while getting your finances in order, you’ll also be actively planning your Holiday activities, which can help you create lasting memories (instead of lasting debt) for your family. And this is pretty huge when you think about it, because most people just tend to “go with the flow” during this time of year, which definitely doesn’t work as well as being intentional about family fun.

With this said, let’s get to the nitty-gritty…

How to Make a Budget for the Holidays in 5 Easy Steps

Step 1: Internalize Your Decision

If you’re truly ready to cruise through the Holiday season unscathed by debt, then the first—and most critical—step is to internalize your decision, and to commit to making it a reality. Doing so will keep you motivated to stay on budget once the shopping starts.

Step 2: Include Key Expenses

One of the top reasons why we fail at sticking to our budgets is forgetting to include key expenses. And because we didn’t expect these expenses, it ultimately messes up our budgets and throws our whole plan out of whack. Because of this, you need to be very detailed about everything your budget should include, which can also give you the opportunity to sit down and talk with your spouse about planning your Holiday spending.

With this said, here are some Christmas categories you’ll need to include (feel free to add any additional categories that may pertain to your needs/values):

  • Gifts for immediate family
  • Gifts for extended family
  • Gifts for friends
  • End of year giving to church/charity/non-profit
  • Decorations (tree, ornaments, lights, etc.)
  • Parties/Entertaining (food, drinks, supplies, etc.)
  • Christmas cards, postage, wrapping
  • Holiday activities/shows/evenings out
  • “Just in Case” (this gives you some wiggle room so that if you missed something, it doesn't have to catch you by surprise)

Step 3: Determining the Amount You Need

Once you know who you’re shopping for, you’ll be in a better position for the next step, which is figuring out how much money you’ll need in order to purchase gifts for everyone on your list.

So, let’s say that after you’ve spent time planning everything, you realize you need a total of $750. Granted, $750 is a lot of money, so in order to break it up into smaller bite-sized pieces, you can divide this amount by the number of remaining months until Christmas. If you started at the beginning of September for example, this would leave four months remaining, which means that you’d need to save $188 ($750 / 4) per month in order to reach your goal.

By using this method, the good news is that the earlier you start, the easier it is to save (after all, that’s why we’re publishing an article about Christmas in October). And if you’ve already missed the boat, that’s ok, because you’ll always have the opportunity to start earlier next year.

If you ultimately determine that the amount of money you need to save is just too high and that you won’t have adequate time after paying all your bills, do this: Take a long, deep breath and reaffirm that no matter what happens, you absolutely will not go into debt. Then, revisit your budget and begin prioritizing by removing everything that is not essential. Remember, having a great time with your family during the Holidays doesn’t mean that you need a lot of money—it just takes some creativity and intentionality on your part.

In order to accomplish this, you can do things like reusing last year’s decorations instead of buying new ones, making decorations from scratch (my son loves making Fruit Loops garlands), or taking a look at Pinterest for more ideas than you’ll ever be able to use. In fact, going this route can not only help you save money, but it can also help bring your family closer together.

After you’ve prioritized and removed all non-essentials, re-determine how much you’ll need to save each month to fund your budget. Once this occurs, if you still don’t think you’ll have enough, you can get creative and start selling items you no longer use at garage sales or using websites such as Craigslist. But whatever you do, don’t go into debt, because you’ll likely be stuck with it for many years.

Decorating the Christmas tree

Step 4: Choose a Simple Tracking System

Once you’ve figured out how you’re going to fund your Christmas budget, you’ll then need a simple system that will help you keep track of it. In all honesty, this often represents another stumbling block for many people, because they tend to overcomplicate their tracking system, which ultimately causes them to not stick to their budget.

Personally, I’ve found great success using a bulletproof cash envelope system, which just involves taking a few envelopes, writing the names of each category on them, as well as the budget I’ve predetermined. For example, one envelope would be for “Gifts for Immediate Family” which would have a budget of $300, another would be for “Gifts for Friends” at $150, and another would be “Food/Entertainment” at $200, and so on, all the way down your list.

Then, as I begin funding my Christmas budget, I just put extra cash in each envelope as it becomes available. During this time, I make sure to count the money often so that I know how much still needs to be saved, which keeps me on track. And when it comes time to purchase my gifts, I just take the money out of the envelope, and when it’s gone, it’s gone. Sometimes I might have over-budgeted for a specific category, so when this occurs, I move the excess over into one or more of the other categories.

Step 5: Maintain Discipline

We’re all friends here, so it’s perfectly OK to admit that maintaining discipline is the most difficult part of sticking to your budget. But you have to make a firm commitment in advance that when the money runs out, you have to stop shopping, regardless of how emotional you may be.

This is because the companies who make many of the products you covet will work tirelessly during the Christmas season to manipulate your emotions and convince you that buying more will increase your happiness. And like the proverbial dog chasing its tail, spending more and more money will simply make you run in circles, constantly trying to catch up with your debt.

Additional Holiday Budgeting Tips to Help You Along the Way

Creating a budget and sticking to it is immensely rewarding, but it isn’t always easy. Because of this, here are some thoughts that helped me successfully follow my budget when I first started:

It’s never too late to start planning your Christmas spending budget.

When creating your budget, figure out what’s really important to you and your family, and be sure to set aside time and money to make these important things come to pass.

This can also be a great time of the year to start a family tradition. After all, making memories with your family is rarely (if ever) about buying a lot of expensive presents. In the end, it’s about spending uninterrupted time together while doing fun things.

Instead of making the Holidays all about presents for your children, teach them to care about and love others. Encourage them to make gifts and help others.

Remember: You decide your budget based on your income, values, and needs—not the big product manufacturers and their slick advertising campaigns.

While it might be challenging at first, be sure to plan your budget with your spouse. This can go a long way toward ensuring you’re both on the same page, and for making sure everyone’s concerns are verbalized and addressed.

If you need, there are numerous Christmas/Holiday budgeting templates available free of charge online, which can be found using a simple Google search.

It’s much easier to remain within your budget using cash than it is using a debit card. In fact, there have been multiple studies conducted that shows the average American spends more money when using a debit card than when using cash. During this time of year, cash is king.

If you have a large extended family, buying gifts for every person can quickly become expensive. Instead, gather everyone together for a Secret Santa, which involves randomly pairing people together, outlining a maximum per-gift price, and then you’re ready to go. This way, everyone will only have to purchase one gift, and everyone else in the group will receive one.

Finally, whatever you do, if you find that you won’t have enough money to buy gifts for everyone on your list, do not go into debt. Instead, prioritize and cut all non-essentials, save money on decorations by using ones you already have, and pay as little as possible on gift wrap such as paper, bows, and ribbon. After all, half the fun is ripping these off on Christmas morning.

HighYa Research Team

The HighYa Research Team is passionate about helping you save money and make smarter purchasing decisions about everything the internet has to offer.