How to Budget for the Holidays

The holidays are fast approaching, and all that merry-making can be expensive. Here's how you can plan now so you can save time, money, and holiday cheer later on.

Sure, we're still in the thick of summer, but the holiday season is closer than you think. With the holidays less than six months away, it's the perfect time to start planning your budget for any travel, family reunions, and gift-giving that you will likely be participating in come December. Why start early? So you don't end up buying everything last-minute—and go way over your budget in the process.

While using your credit card does come with benefits, you don't want to put all your purchases on your credit card and potentially go into debt. Plus, you can keep an eye out for sales and deals over the next few months to get your presents early and make them more thoughtful. If you have been good about saving and sticking to a budget all year, there's no reason that should go out the window come the holiday season. Still, there is a lot of pressure to buy things during the holidays, and that can be stressful—and bad for your wallet. Here are ways to save money for the holidays so you can spend those December days celebrating the things that truly matter.

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Set a spending limit for gifts.

It's a great feeling to give someone a gift you know they'll love—and to see their face when they open it. But you don't need to spend a ton of money trying to get that reaction. Set limits on how much you want to spend on gifts, and try your best to stick to that. There are plenty of ways to give someone a gift they will love without blowing your budget.

If gift-giving is important to you, start saving early so you can budget for it. "One of the first things I tackle with clients is budgeting for gifts, because most people don't think of it," says Heather Albrecht, financial coach and founder of Balance Financial Coaching.

While the amount you decide to spend on gifts is subjective, Albrecht says to use what you spent last year as a reference point.

Financial coach Annette Harris says to aim for $100 to $200 on gifts for family members, and $20 to $50 on gifts for friends.

It really is the thought that counts, and your friends and family will love what you got them because it's from you.

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Write down all of your anticipated holiday expenses.

Make note of all of your potential expenses for the holidays. This includes any travel, dinners you may be hosting, and of course, gifts.

"I recommend thinking of who you need to shop for each holiday season, and assigning an amount you wish to spend on them based on what you normally do," says Albrecht. "Tally that all up, divide by 12, and that's your holiday budget!"

If you're hosting people over the holidays, set a budget now for how much you plan to spend on food, drinks, and decor. To save some money (and time) you can do a potluck and have your guests each bring a dish. You can also do Secret Santa or White Elephant; not only are they tons of fun, but everyone will end up with a present.

Knowing how much you're planning on spending six months (or more) in advance will help you save. Having a separate savings account for holiday season can really help. "If you put away $50 per month, you would have $600 saved for holiday spending," says Katherine Knapp, personal budget coach and owner of My Budget Architect.

Last year, Americans spent about $1,000 for holiday shopping and other expenses, according to Investopedia, which means you would have to set aside $85 each month.

Figure out your holiday expenses and start saving now, so your holidays can be more about making memories and less about spending money you don't have.

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Plan your travel early—and stick to a budget during your travels.

The post-pandemic travel surge is real—and with holiday season being one of the busiest times of the year for travel, you could end up spending a lot more than you expected for your holiday getaway.

To avoid this, make sure you book your hotel and flights in advance. They might still be expensive because of the current demand for travel, but you will definitely get a better deal by booking sooner rather than later. You could even get hotel deals for booking on certain days of the week.

If you're traveling during the holidays, account for expenses such as activities, food, and shopping. "Assign a specific amount of money to each category like lodging, shopping, gifts, and food," says personal finance expert John Marsano.

Harris suggests planning and budgeting for holiday travel at least six months in advance. And of course, while you're traveling, make sure you stick to that vacation budget.

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Keep an eye out for sales and deals over the next few months.

Planning for holiday spending well in advance gives you a chance to get good deals on gifts—and more time to think about what you want to give everyone. If you wait until the last minute, it's more likely that you'll end up spending way more than you intended.

Blogger Lisa Van Groningen, founder of Your Mom Village, starts her holiday budgeting in July with a trusty holiday binder. "Starting early is key," Van Groningen says, "and gives you time to save as you buy items each month."

Van Groningen says July is a great time to look for deals because most stores will have sales and rotate inventory for back-to-school. "You can find terrific discounts," she notes.

Another tip is to buy gift cards in advance for stores you know you'll be doing your holiday shopping at. Stores often have sales where they offer gift cards if you spend a certain amount.

"If you are shopping for a lot of nieces and nephews, remember that gift cards are great," says Albrecht. They get to use it toward something they love, saving you time and money. "The best gift you can give yourself is a credit card bill you can pay in full come January," Albrecht adds.

Pull out your holiday binder or spreadsheet (or however you like to budget) and start planning now to ensure that your holiday season is fun, relaxing, and full of joy, not debt.

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