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All You Need to Know About Your Winter Holiday Budget

Posted by MoneyKey on December 13, 2018
How to budget during the holidays: Save more, spend less, and set expectations.

Now that the countdown to the winter holidays is on, it’s time to think about how you can participate in the season of giving without busting your budget.

Here at MoneyKey, we’ve come up with the three ‘S’s of the holidays — save as much as you can, spend less, and set expectations — all to help you celebrate on any kind of budget. Whether you plan to splurge or have very little to spare this year, the three ‘S’s may help you prepare your bank account for a month spent merrymaking.

With the countdown ticking away, there’s no time left to lose. Let’s dive into these rules to see how you might keep the festivities frugal without feeling like a Grinch!

The First ‘S’ of the Holidays: Save as Much as You Can

Most financial experts suggest spending roughly one percent of your income on the winter holidays. They say this should cover all the usual expenses of the season, including gifts, food, decorations, and travel.

This is a good place to start if you aren’t sure how much you can afford to spend, as it’s a relatively low portion of your earnings.

Of course, one percent will look different for everyone planning for the holidays. For someone who brings home $85,000 after taxes, they would have $850 to spend on the festivities, while someone who makes $30,000 after taxes would have $300.

How does this rule measure up to spending forecasts?

Gift bags purchased using 1% of the annual income as holiday budget

Economists at Deloitte estimate the average holiday shopper will spend $1,536 this year — or roughly $300 more than what they estimated for last year’s spending. Here’s the breakdown of their seasonal forecast:

  • $611 will be spent on experiences
  • $525 will be spent on gifts
  • $400 will be spent on non-gifts

The National Retail Federation’s Winter Holidays Forecast also predicts the average shopper will spend more this year than they did in 2017. But they say shoppers will spend an average of $1,007 — up by $40 from last year’s forecast. The NRF estimates the breakdown will look something like this:

  • $638 will be spent on gifts
  • $215 will be spent on non-gift holiday purchase, including food, decorations, and cards
  • $155 will be spent on non-gift purchases for themselves

As you can see, Deloitte’s and the NRF’s forecasts overlap, but they don’t line up perfectly. That’s because they’re only forecasts — not facts. Economists hinge their predictions on a lot of economic factors that affect their calculations. Their survey methodologies and sample sizes may also alter their predictions.

Meanwhile, how you fit into their calculations depends solely on how you plan for the holidays. While you may want to spend as much as these predictions (or more), these surveys may be at odds with the one percent rule.

Make a budget before you do anything

Overindulging comes with consequences. Just as an extra-large slice of pie may be unkind to your waistline, overspending at the till may leave your finances tight. You’ll know if a holiday expense is something you can realistically take on when you use a budget.

When making a gingerbread house, you don’t start with the roof, or the candy cane windows, or the sugar plum landscaping details. If you expect to build a sturdy house that can withstand stealthy snacking throughout the season, you have to start with a base and at least four strong walls.

Think of your holiday finances like a gingerbread house. It will need a strong foundation (i.e. Budget)

Besides making you hungry, what purpose does this talk of a structurally sound gingerbread house have to do with this guide to the season? Well, like a well-made gingerbread house, your holiday finances need a strong foundation. Instead of delicious gingerbread baked to perfection, the best base for your finances is a budget.

Between all the gifts, goodies, and travelling this December, your finances are under a lot of pressure. They might crumble like underbaked gingerbread if you don’t use a budget to help guide your spending.

A budget helps you figure out how much you can afford to spend on the festivities by seeing how much cash you have left over once you cover your important responsibilities — things like housing costs, utilities, and, for those who have them, online payday loans.

You can find a quick overview of our favorite budgeting methods over in our resource center. This is a great starting point whenever you want to boost on your financial know-how, and we encourage you to check in when you’re making a wintertime household budget.

Use your budget to find savings

Once you determine how much of your income must go towards the necessities, what’s leftover is your monthly expendable cash. You can decide what’s the most appropriate use of this remaining portion of your income. For example, you might want part of these funds to go towards the fun or unnecessary things you might purchase this holiday season.

You need to figure out how much of this expendable cash should go towards the winter holidays and how much should go towards your savings. Although holiday spending may seem like your priority during the season, your savings have long-term importance for your financial well-being and should remain top of mind during the holidays. By developing your savings, you might be better prepared for any unexpected expenses that may come your way this winter.

A person writing in a notepad to make a list of expenses

If the number you’re left with is less than what you were expecting, you may want to look at the other expenses that use up the rest of your expendable cash. They may hold the key to freeing up more money to put towards your savings.

Our ultimate savings guide highlights some of these weak spots in your spending habits to help you get started. In many cases, the bad spending habits may involve mindless purchases made in the name of convenience. Common culprits are things like a special latte as a mid-afternoon pick-me-up when you’re feeling tired at work or a takeout meal delivered to your door when your fridge is empty.

Other ways you can cut spending to save more include:

  • Cutting the cord: the average cost of cable can be as much as $85 a month. Consider switching to a streaming service like Netflix or Hulu instead. As of the time of this article, these services cost $10.99 and $7.99 respectively, making either of these services a much more affordable option than cable. You’ll still be able to watch many of your favorite shows while saving as much as $77 each month.
  • Skipping the gym: when was the last time you went to the gym? If you can’t quite recall your last visit, speak to your gym about cancelling your membership. You can still keep on top of your fitness by trying out yoga or something like this at-home workout routine.
  • Checking out our blog: that’s right! Hit the back button and explore our previous posts. With tips that include how to reduce what you spend on utility bills and grocery bills, you might find a way to boost your savings.
  • Saving loose change: when you spend cash at the till, don’t put small change back into your wallet. Save it. Although a handful of change won’t make much of a difference at first, you may be able to save a lot of money by collecting all your loose change from every cash purchase.
  • Saving your digital change, too: you may also employ the same technique to your debit purchases. Free apps like Chime and Qapital connect with your checking account and round every purchase you make to the nearest dollar. These apps save the remainder in a dedicated savings account you can access at any time.

You may find it easier to save when you follow these tips. Depending on how successful you are at reducing or cutting out unnecessary expenses from your life, you may even be able to afford to spend one percent of your income on the festivities!

The Second ‘S’ of the Holidays: Spend Less

Now that you’ve determined your holiday budget — and boosted your savings by cutting out unnecessary expenses — you’re ready for the next step. Spending less on the season’s must-haves is a great way to make your budget go further regardless of how big or small your limit may be.

For us, spending less means finding sales so good they come with a shot of adrenaline when you manage to snag them. Saving even a few dollars on the things you need helps boost your mood and your budget simultaneously.

While it’s important you try to save as much as you can, you might increase the overall purchasing power of your dollar by finding discounts on the items you need. If you manage to find significant deals that lower the cost of the items on your list, you may be able to buy more with the same amount of money.

If you didn’t score any major deals this Black Friday or Cyber Monday, there’s no need to panic. There are other ways to navigate the holidays on a tight budget. Below are five of our favorite ways to spend less:

  1. Use a list and track your spending

You may have the best intentions before you enter the mall, but it’s not always easy sticking to your budget when you walk through the doors. In the long line to get to checkout, you may pass by bins of discounted add-on items that look like a good idea while you’re waiting for your turn at the cash. Flashy ads promoting a buy three, get three free deal may convince you to get six of something when you only need one.

Keep tracking of your spending by starting with a list

These marketing techniques are even more effective when you show up to the mall without knowing what you’re going to get your loved ones. When you shop from a list, you may find it easier to focus on the things you need, so you aren’t tempted to fill your cart with things you don’t.

Pair your list with a spending tracker, and you’ll never be confused about how much you’ve spent on the winter holidays. This list shows you apps that make it easier to log your purchases and compare it to your overall budget. You can also track your expenses the old-fashioned way by writing them out on a piece of paper.

  1. Never pay for shipping

According to the latest stats, online spending will grow more than 14 percent this year. If you plan on ticking items off your list from a laptop or mobile phone, be sure to check the shipping policies of any website you visit this holiday.

Shipping fees are an annoying part of shopping online for gifts during the busiest gift-giving time of the year. Seeing shipping fees bloat your total can leave you saying, “Bah, humbug!” or you may end up buying additional items to tip your total over the minimum to qualify for the site’s free shipping.

Women shopping online without paying shipping fee

Clicking ‘add to cart’ just to save on shipping fees is counterproductive. Rather than buying more than you need, try shopping with these online stores instead. They don’t have a checkout minimum before customers get free shipping — it’s available all the time. You may also want to check if any gifts on your list are available on Amazon. They just introduced free shipping to all shoppers for the holidays — not just Amazon Prime members.

  1. Time your shopping carefully

In the Christmas movie “Jingle All the Way”, Arnold Schwarzenegger plans to buy the most popular toy of the season for his son, which happens to be an action figure of Turbo-Man. Only, he forgets to buy it when his wife asks him to, so he ends up battling other last-minute shoppers for the last Turbo-Man on Christmas Eve. When that doesn’t work, Arnold leaves the mall in an attempt to buy the doll from a counterfeit toy scam and narrowly avoids getting arrested when the cops bust in.

Besides watching Arnold try and fail to get a Turbo-Man in increasingly bizarre ways, this part of “Jingle All the Way” proves desperate shoppers can make bad decisions. While we aren’t suggesting you’ll go to the same lengths as Arnold, you may convince yourself that spending extra money on something like expedited shipping is a good idea as long as you get the must-have gift of the season.

By giving yourself some breathing room to think about how and when you can buy your must-haves, you might be in a better position to keep a level head and avoid scams.

Don't wait until last minute for holiday shopping to avoid paying extra

  1. Consider using layaway

Procrastination and absentmindedness aren’t the only things that impact when you shop for gifts. The timing of your paycheck may prevent you from shopping when you want. A payday schedule that’s at odds with the winter holiday can be tricky; some people turn to credit cards as a way to fill the gaps between paydays.

Before charging your holidays on credit, check to see if your favorite store offers a layaway plan. It’s a payment plan that helps you put an item on hold until you can pay for it. After you’ve put a down payment on the item, and paid any potential layaway service fees, you may pay for the item in one lump sum at a later date. Depending on the layaway provider, you may also have the option to pay for the item in small portions over a designated time period. In this way, you may pay off a layaway item in installments similar to the way borrowers pay back our installment loans in scheduled payments.

If this sounds like something you could use, check in with RetailMeNot’s list of stores that offer layaways during the holidays. These plans may be a better alternative to using credit cards.

  1. Trade in or buy used

Have you ever thought to “re-gift” a present? The term was first popularized in an episode of “Seinfeld” when Dr. Tim Whatley gave Jerry a label marker originally given to him by Elaine. This little switcheroo painted Dr. Whatley as a festive criminal committing a massive Christmas-time faux pas.

Do you think he deserved it?

Regifting has gotten a bad rap that many people don’t believe it deserves because of this episode of “Seinfeld”. In reality, second-hand gifts are a great idea. You may be able to save some money without disappointing the people on your list. In reality, second-hand gifts are a great idea. You may be able to save some money without disappointing the people on your list — if you do it right.

When regifting in the truest sense (i.e., by giving a gift someone else gave to you), the trick is to match the gift to the right person — making sure not to regift an obvious present they’ve seen you unwrap.

Books can be re-gifted or can be purchased as second-hand gift

If you don’t feel comfortable regifting like this, consider purchasing a second-hand gift. Some pre-loved items are perfectly good to give on the big day. Things like used books, collectibles, board games, DVDs, and video games come at a fraction of the cost they come new. Meanwhile, refurbished tech is an affordable way to get the latest gadgets for your loved ones.

In many cases, when you get them something they want, few people will care that the gift they unwrapped was used before. Whether it’s a collectible vase or a pre-owned phone, it’s the thought that counts.

If you decide to purchase pre-owned electronics, make sure you buy them from reputable sources. Trusted cell phone providers, retailers, and even some manufacturers like Apple offer refurbished items that come with warranties to ensure their second-hand goods are up to factory standards. Compare this to a classified ad you found on Craigslist; in most cases, individual owners can’t offer the same quality guarantee that these certificates provide. By shopping for refurbished items carefully, you’ll avoid giving away a potentially defective gadget.

The Third ‘S’ of the Holidays: Set Expectations

Last but not least, but perhaps one of the most challenging, the final ‘S’ of the winter holidays is a pledge to set expectations. The winter holidays are a magical time of year, and it’s easy to spend a lot of money when you’re trying to create the perfect experience for your family.

When you get carried away with the spirit of the season, you may end up RSVPing ‘yes’ to every invitation, showing up to every gathering with a gift for the host, travelling to multiple dinners, sending heavy packages through the mail, signing up for Secret Santa exchanges, promising a big haul on Christmas day, and decking all the halls with more than just holly.

Phew — if that sounds exhausting for your social calendar, just think of your wallet. You might overextend your budget when you commit to curating a picture-perfect holiday season from top to bottom.

Learning to say ‘no’

Part of setting expectations is acknowledging you can’t do everything. It’s about accepting you have limits, and that’s it okay to celebrate the holidays within them. Although you may have to decline some invitations or limit how many gifts you give, these money-saving techniques won’t stop you from enjoying the festivities. The holidays should be about who you spend them with, not who can do the most or give the biggest, most expensive gifts.

Work together with your family and friends

Another part of setting expectations is making sure the people in your life understand your limits. This may be difficult because it means you have to talk about the ‘m’ word with your family. Money is never an easy topic of conversation, and it gets no easier when it happens in the pressure cooker that is the holiday season.

Think about what you want to share with your family and figure out if it’s an appropriate topic of conversation before or after the big dinner. When you have this conversation, you’ll have a better chance to make sure everyone is on the same page, so no one feels snubbed or left out. You might even be able to brainstorm an affordable way to celebrate that works for everyone’s budget.

Get your children involved

An easy way to keep your budget on track during holidays is to remember it's about spending time WITH loved ones, not spending money ON loved ones.

As much as the money talk may be hard during the holidays, it’s even more challenging when you can’t talk about money at all — like when you have small children excited about what Santa might leave underneath the tree. Luckily, you can still manage their expectations, so they aren’t disappointed with any part of their holiday. Check in a guide like this one to see how you should discuss the holidays in a way that makes sense for younger kids.

Keeping the festivities frugal isn’t a pipedream

The classic movie, “A Christmas Carol” imparts an important lesson about the magic of the winter holidays. The holidays may transform even the grumpiest Scrooge into a generous spendthrift. It’s easy to get carried away by the spirit of giving. You may end up spending more than you planned by spoiling your loved ones.

If you’re worried the hustle and bustle of the season will run away with your wallet, remember our three ‘S’s of the holidays. This quick mnemonic device reminds you to:

Save as much as you can,

Spend less, and

Set expectations.

When you follow these quick tricks, you’ll be in a better position to control your spending without sacrificing any of the fun things you expect from the holidays. More importantly, when you commit to celebrating the season with your finances intact, you won’t have to worry about the ghost of Christmas future bemoaning the spending habits of Christmas present.

Let us know of your favorite ways to save during the holidays, don’t forget to stick with our three ‘S’s, and, most importantly, enjoy yourself this December. Happy holidays from our family to yours!

 

Disclaimer: This article provides general information only and does not constitute financial, legal or other professional advice. For full details, see MoneyKey's Terms of Use.

Posted in: Financial Tips Holiday Tips

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