Christmas on a Budget: How to Make Sure You Don’t Fall Into Debt This Holiday Season

Budget Hacks

Christmas on a Budget: How to Make Sure You Don’t Fall Into Debt This Holiday Season

Thankfully, you don’t have to be a Scrooge in order to escape the holiday season with your finances intact.

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Christmas on a Budget: How to Make Sure You Don’t Fall Into Debt This Holiday Season

Christmas is my favorite time of year, but it can also be rough on your budget.. With lots of gifts to buy, parties to attend, and seasonal events, the expenses seem to pile up in a hurry.

According to the National Retail Federation, the average American plans to spend $998 on Christmas this year, including gifts, food, and decorations. If you’re not prepared, that’s a huge amount of money to come up with all at once.

Keeping Christmas expenses under control is a big part of being a financially responsible individual and not a person who just tries to be financially responsible. Thankfully, you don’t have to be a Scrooge in order to escape the holiday season with your finances intact.

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In order to control your Christmas spending, and to prevent a nasty surprise when your credit card bill arrives in January, you should decide exactly how much you’re going to allocate to Christmas-related expenses. You can do that by creating a Christmas budget.

How to Create Your Christmas Budget

Budgets are often used for managing monthly income and expenses, but have you ever considered creating a budget specifically for Christmas? Your Christmas budget doesn’t need to be complicated. We’ll walk you through the simple steps you can take, and we’ll even show you a sample budget.

Step 1: Determine How Much You’re Going To Spend on Christmas

First, you should decide exactly how much money you are going to spend on Christmas-related expenses as a whole. Take a look at your current financial situation and see what you can spend without going into debt or without going overboard. For the sake of our sample budget, we’ll plan to spend $900 so we can stay below the average and still have a nice holiday season.

Step 2: Create a List of Your Christmas Expenses

Next, think about all of the ways that you’ll spend money at Christmas. Gifts are the most obvious expenses, but most people also spend money in some of the following ways:

  • Food for family gatherings or parties (though in the age of COVID you might be able to save a few bucks on that this year)
  • Indoor and outdoor decorations
  • Admission to events
  • Christmas cards and stamps
  • Family photos
  • Charitable giving
  • Wrapping paper

In terms of gifts, your Christmas budget should have a line item for each person that will be receiving a gift from you. Family and close friends will be the obvious inclusions, but don’t forget about others like neighbors, co-workers, postal delivery workers, that friendly barista at the coffee shop, or whoever else you might be shopping for this year. Personally, I love to keep a cache of small and inexpensive (but useful) gifts that I can hand out to anyone. Often things like mini hand sanitizers and fun socks make excellent gifts for casual acquaintances. .

Step 3: Decide How Much You Will Spend for Each Line Item

After you’ve determined how much you’re going to spend and you’ve listed all of your Christmas-related expenses, the next step is to break it down and decide how much you’re going to budget for each line item.

You’ll probably have to play around with the numbers by increasing or decreasing line items to get just the right total. Of course, your budget will be impacted by the size of your family and the number of people that you buy gifts for.

Here is a look at the sample budget.

Christmas Budget
Item Amount
Food $75
Decorations $75
Photos $0 (will take them ourselves)
Christmas Cards and Stamps $125
Charitable Giving $25
Wrapping Paper $25
Gifts for Spouse $125
Gifts for Child #1 $125
Gifts for Child #2 $125
Gift for Mom $25
Gift for Dad $25
Gift for Mother-in-Law $25
Gift for Father-in-Law $25
Gift for Friend #1 $25
Gift for Friend #2 $25
Gift for Neighbor $25
Gift for Coworker $25
Total $900

Step 4: Track Your Expenses

Creating your budget is a great start, but in order for it to be effective, you must actually stick to the budget. You’ll need to record your expenses to see how much you’ve actually spent.

Tracking expenses is really simple. All you need to do is create a very basic spreadsheet with each line item in your budget, and then update the spreadsheet whenever you make a Christmas-related purchase.

If you use a budgeting app, you could also set up a specific Christmas budget and use the app for that as well. A good old-fashioned pen and paper budget still works too. It doesn’t matter how you track your expenses, so just choose the approach that is most convenient for you.

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Tips for Enjoying Christmas on a Budget

For some of us, it can be downright scary to look at how much you spend on Christmas. It’s easy to underestimate how much it actually winds up costing, and it’s also tempting to justify higher-than-necessary expenses at this time of year. The problem is, many people wind up with credit card debt because of overspending during the holidays.

If you’re trying to keep a tighter rein on your Christmas spending to avoid debt or simply to preserve more of your savings, there are a number of options.

1. Favor Experiences Over Traditional Gifts

Gifts account for the majority of Christmas spending. While it’s great to give generously to others, not all gifts need to be expensive. Instead of buying an object, consider an experience instead.

While this may not be an appropriate option for everyone on your shopping list, it could be great for many people. There are plenty of experiences that would cost less than another type of gift, and some might even be free.

The experience that you give could have the added benefit of more time with the people you love.

2. Make It Yourself

There are a lot of ways you can save money at Christmas by taking a DIY approach. This can include gifts, food, cards, and more.

If you’re attending a Christmas party or event, maybe you bake cookies instead of buying something at the store. Baked goods also make great gifts for neighbors, coworkers, and others.

Depending on your skills and your hobbies, you may be able to make gifts for some people, and you might even enjoy doing it! If you’re crafty, this is an ideal option for you. Even if you’re not crafty, there are plenty of options if you use some creativity. Think about your skills and hobbies and how you could incorporate them into a gift.

3. Set Limits With Friends and Family

Do you spend more on Christmas gifts because you’re not sure how much money someone else is going to spend on you? Nobody wants to be embarrassed by giving a gift that is perceived as being cheap.

A simple way to get control over this is to talk with your friends and family and set a limit for the amount that you’ll spend on gifts. Everyone will still be able to enjoy giving and receiving gifts, but you won’t spend more just for the sake of your pride.

4. Do a Gift Exchange

How many people are on your Christmas shopping list? It’s easy for that number to get out of control really quickly. I have a massive family, and we set a boundary that we do an assigned gift exchange with a dollar limit. Everyone gets one gift and gives one gift. It rocks.

Outside of your immediate family members, consider doing a gift exchange where everyone buys a gift for one other person instead of a gift for each person. This can work extremely well and it will have a huge impact on the amount that you spend. It’s ideal for coworkers, extended family, and other groups.

5. Consider Family Gifts

Another way to easily reduce the number of gifts that you buy and the overall amount that you spend is to go with a family gift instead of gifts for each person in the family. For example, my family and my sister’s family exchange family gifts each year. She has five kids, so I save a lot of money! Plus, it’s fun to come up with a gift that everyone in the family will like.

6. Evaluate Your Expenses

When you’re creating your Christmas budget, evaluate the different line items and think about whether they’re really necessary and if they bring enough value or joy to justify the expense. Most of us have traditions that we tend to follow at this time of year. There is nothing wrong with traditions, but do you really enjoy them or do you do them simply because that’s what you’ve always done?

When you evaluate the ways you spend money at Christmas, you may decide that some things simply aren’t worth the amount of money that you’re spending on them. If that’s the case, reduce the amount in your budget (if possible) or skip that expense altogether.

7. Take Advantage of Discount Websites and Retail Stores

There are a lot of websites and stores where you can find great deals on gifts that people will love. While there are plenty of possibilities, here are a few examples.

  • RebateKey - You can get rebates (up to 100% off) on products sold at Amazon. You’ll purchase the product at full-price and receive a check for the rebate. Some Amazon sellers offer huge rebates because they’re trying to boost sales volume and move up the Amazon search rankings. You can benefit by getting products for amazing deals.
  • Vipon - Get significant discounts on products sold at Amazon. Instead of rebates, these are discounts applied through coupon codes.
  • Blinq - You can buy returned and overstock items for amazing prices here. The size of the discount will vary, but there are some excellents deals to be found.
  • Five Below - This retailer is a perfect option for inexpensive gifts, especially for kids. Everything in the store is $5 or less, and there are plenty of things that kids will love.

Of course, the websites and stores listed above are only a few options, but there are many others as well. Think creatively and don’t limit yourself to particular stores for your Christmas shopping.

8. Buy Second Hand

While it may not be the best option for everyone on your Christmas list, buying used items can be an ideal way to save money while still giving gifts that people will love. My wife and I buy second hand gifts for our kids and for each other at times, and it doesn’t bother any of us (our kids think nothing of it because they’re used to us buying used items).

Buying used may allow you to get something that would be far too expensive if you were to buy it new, so even the person receiving the gift can win. Sometimes items at thrift stores are unused or unopened, which truly feels like a Christmas gift to both your budget and your family.

9. Use Credit Card Rewards

If you use a credit card, you’re probably earning cash back or rewards for every dollar that you spend. By using your credit card for routine expenses like groceries and gas, you can rack up a lot of rewards throughout the course of the year.

A simple way to save a lot of money at Christmas is to let your cash back or rewards accumulate throughout the year, and then redeem them to offset the costs of Christmas.

If you want to take it a step further, you could sign up for a new credit card that offers a sign up bonus and use that bonus towards Christmas as well.

It’s important to note that you should only use credit cards for expenses that can be paid off in full each month. Credit card interest charges are sky high and it’s an easy way to get into debt if you’re not careful. But if you’re disciplined, credit card rewards are like free money.

10. Save Throughout the Year

Ideally, one of the best ways to manage your Christmas spending is to prepare by saving money throughout the year. December is not the best time to start thinking about Christmas spending. It might be too late to put this point into practice this year, but you can get an early start for next year. This is such an important part of managing your money during the holidays that we’ll cover it in more detail in the next section.

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Planning Ahead

If you’re feeling the pain of overwhelming holiday expenses, you can spare yourself from going through it again next year by simply planning ahead. Saving for Christmas may not feel like a priority at other times throughout the year, but there are some simple steps you can take to make it a painless process.

Save Each Month

Make Christmas savings a part of your regular monthly budget. The sample Christmas budget that we used for this article was $900. That’s below the national average but still a significant chunk of money to come up with at the end of the year. However, if you save just $75 each month, you’ll have $900 with no stress or worry.

Buy Gifts Throughout the Year When They’re on Sale

There’s no reason that your Christmas shopping has to be done in November or December. Plan ahead and think about the gifts you’ll buy for people on your list. If you keep your eyes open throughout the year, you may be able to save a lot of money by purchasing items when they’re on sale.

Buy Decorations After Christmas

The easiest way to save money on decorations is to buy them after Christmas. Immediately after Christmas, retail stores offer decorations at very deep discounts so they can get rid of them and clear out the space for other inventory. Take advantage of this and buy ahead of time for next year. I recommend doing the same for Halloween candy, but instead of saving it I just eat it all immediately.

Consider a Side Hustle

If you’d like to be able to spend more at Christmas without getting into debt or feeling guilty, starting a side hustle could be a great option. There are all kinds of ways you can make extra money like selling on Etsy, blogging, and retail arbitrage. You can use this extra money in any way you choose, including Christmas savings. A simple side hustle that brings in just $100 per month would make a huge difference in your Christmas budget.

Final Thoughts

Christmas should be a fun time of year rather than a stressful season filled with financial worries. With the right approach, you can enjoy all of the great parts of Christmas without overspending or racking up debt. Put these tips into practice and you’ll be giving yourself the gift of a more enjoyable Christmas.

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