December 12, 2019 – By Anne-Marie Hays
A holiday budget. To many, this phrase may seem like an oxymoron — like a jumbo shrimp, a working vacation, or fresh cafeteria food.
Holidays and budgets do feel strange for some people, like setting limits on the amount of fun that you can have. How do you limit fun? I will stop at one fun, two funs, three funs? While some consumers feel that budgeting would take the fun out of the holiday season, financial experts are pretty adamant that making and sticking to a holiday budget is important, considering the way that Americans feel about spending money during the holidays:
- 16% of Americans don’t have a plan to manage money this holiday season (Principal)
- 30% of parents with children under 18 are still paying off debts from last year (LendingTree)
- 44% of Americans don’t plan to set a budget for holiday gifts (Principal)
- 56% of Americans felt pressure to spend beyond their budget last holiday season — not only on gifts, felt by 66% of people, but also on food and drinks, (29%) travel (18%), outfits for social obligations (16%) and festive home décor (14%) (SunTrust)
- 61% of Americans are dreading the holiday season because of spending (LendingTree)
- 69% of parents with kids under 18 are worried about disappointing their kids, and 51% are losing sleep because they are worried about holiday spending (LendingTree)
- 71% of Americans would still buy holiday gifts even if it meant taking on credit card debt (Tally)
- 71% of Millenials feel pressured to purchase gifts, while 60% of Gen Xers and 36% of baby boomers do (LendingTree)
- Americans plan to spend a median of $400 this holiday season, with 68% of Americans planning to put more than half of their holiday spending on credit cards (SunTrust)
- Nearly 1 in 4 Americans expect to dip into their emergency savings to fund their holiday season (SunTrust)
Holiday Planning
Let’s just say that I am personally not one who is inclined to plan anything, from what time to wake up tomorrow to what we will have for dinner tonight. I hate it. Well, it turns out that most of our financial experts really lean-in on the planning aspect of holiday budgeting. Not necessarily a surprise. In an attempt to be open-minded, here are a few mind/palate cleansers to acclimate us for the advice to come:
“An hour of planning can save you 10 hours of doing.” — Dale Carnegie
“A goal without a plan is just a wish.” — Antoine de Saint-Exupery
“Plans are nothing; planning is everything.” — Eisenhower
“It takes as much energy to wish as it does to plan.” — Eleanor Roosevelt
Ok. Feeling inspired? Let’s look into a couple of holiday savings strategies.
Stockpiling Gift Cards
First, stop: Jonathan Bednar is a certified financial planner and owner of Paradigm Wealth Partners in Knoxville, Tennessee. He shares a holiday budgeting hack using gift cards:
“When we create the budget together, I ask the client what the budget amount is for holiday spending. Let’s assume they want to use $1,200. I then recommend they buy a $100 gift card once a month when they are doing their grocery shopping. This is a forced savings mechanism in their budget for holiday gifts and when December arrives they have $1,200 in gift cards they can use to buy gifts for their friends and families.”
But, what kind of gift cards should you buy?
Gift cards are tricky. You can pay to get a reloadable branded gift card, or you can get a gift card that has to be used at one store.
Think of where you normally do holiday shopping in the past. Gift cards to stores that you frequent like Fred Meyer, Target, and Walmart may be the best bet if you aren’t sure what you will be purchasing yet.
At least you have started saving. We will get to planning and prioritizing later.
Utilizing a Holiday Fund
Next, The Savvy Accountant™ Atiya Brown, CPA, CA CFEI, creator of Live Financially Savvy suggests:
“I definitely believe that you need to create and stick to a Healthy Money Menu® aka budget in order to tell your money where to go, which includes being able to save.
I actually create a Christmas challenge to save $750 by Thanksgiving to be able to go shopping on Black Friday without inviting debt.
Every week I save and post to my group to save $16, and every month I suggest that they purchase a gift card with the cash in their envelopes. I suggest the purchase of gift cards so that they aren’t tempted to spend the cash. I also advocate for my savvy family to save in an online savings account where they can earn more interest on their cash.
I definitely believe that you can save while building your emergency fund and paying off debt if you have the appropriate line items in your Healthy Money Menu®.
For saving a holiday fund, I recommend that you include a line in your Healthy Money Menu® for your Holiday Spending. Also, you should determine the amount you want to save and work backwards to find your weekly, bi-weekly or monthly amount.
My biggest suggestion is to save your emergency fund in an online savings account like Marcus (old Goldman Sachs) where the rate is 1.7 percent and there are no fees due to no overhead of the bank. Plus you do not get a debit card so you aren’t tempted to spend the money
I also suggest transferring your money automatically from your payroll so you don’t see the money in your take-home if that’s an option.”
Holiday Budget Strategies
Brittany Kline, personal finance expert, The Savvy Couple shares this advice:
“Before creating a holiday budget, you first need to make a plan on how much is even reasonable to spend. Make a list of everyone you need to shop for and all the events you will be hosting/attending where money will need to be spent.
Start to make a limit for everyone and everything on your list. See where you can cut costs by either making homemade gifts or looking for a good deal. If you set a limit for a certain person in your family, you need to stick to it.
We have found that experiences are better to give than material gifts. To save money and create memories, our family no longer exchanges presents with one another. We go bowling, attend an escape room or another experience that is local to our area. We get to spend time together creating life-long memories. It’s a win-win.”
Setting Hard Limits
While some people set a dollar limit that they can afford, others just go spend and add up the stuff later. Have you ever considered how much of your annual income you spend in the holiday season? This perspective can be helpful when setting financial limits. Leslie Copeland, chief strategy officer at Ascend Federal Credit Union:
“Shoppers should spend no more than 1.5 percent of their annual income on holiday expenses. Once that number is set, they can plan out gifts, food, entertaining and travel costs.”
What does 1.5 percent of an annual income look like?
If you make $10,000 per year, your max holiday budget should be $150.
If you make $20,000 per year, your max holiday budget should be $300.
If you make $40,000 per year, your max holiday budget should be $600.
If you make $80,000 per year, your max holiday budget should be $1,200.
Drafting the Gift List
Whether you have been saving for months or not, the holidays will still come, and you will be ready to obli-gift everyone in the world. Next, we need to set boundaries and strategize gift-giving, priorities, and spending. But you don’t have to do it alone. This step can be done with help from family and friends. You want to get on the same page and find common ground and know what to expect.
Every year, come November or December, I find myself evaluating every relationship in my life, deciding whether I think someone is getting me something so I have to get them something, or whether I want to impress someone with my great gift-giving skills, Leslie-Knope style:
“Giving Christmas gifts is like a sport to me. Finding or making that perfect something. It’s also like a sport to me because I always win.”
However, I always find myself trying to justify getting all these gifts with the amount I am planning to spend and not finding room. Student loans are the worst. Luckily, the majority of you are not Santa. Naughty and nice is not important. You can make your Christmas gifting list with your own situation in mind. And you’re not alone.
Establishing Rules
Every game needs rules. Without rules, we don’t know what is expected of us, how we can contribute, and if we are even doing the right thing.
Before you make a gameplan, you have to know the rules. However, you don’t have to make them up yourself, or as you go along (looking at you, little brother).
First, Joe Buhrmann, Manager of Planning Support at COUNTRY Financial suggests:
“Bring the whole family together and discuss budget amounts for gifts for the people on your family’s list. Make it a tradition to talk openly about budgeting goals and challenges so that you are sharing the emotional load with the family. In fact, a new COUNTRY Financial® Security Index found that nearly half of Americans agree with the statement, ‘I feel significantly happier when I plan and budget my holiday spending.’
Have realistic conversations. Ask yourself what your family can realistically afford this holiday season, create a goal and stick to it. We all want to be generous and give our loved ones a magical experience during the holidays, but don’t let that feeling lead you to regret – and debt! There are a number of ways to be efficient with your gift-giving this holiday such as making a donation or volunteering time to a charity in a family member’s name in lieu of buying them an expensive gift. Large families should also consider drawing names for gifts or participating in Secret Santa style giving as a way to cut back on gift spending.”
Next, Brian Nelson Ford, SunTrust Financial Wellbeing executive shares:
“Remember that others are feeling the same pressure to spend, so set clear expectations with your friends and family about how you will be spending the holidays. Be honest about your spending expectations on gifts, but also carefully consider how you will be spending your time and communicate that well in advance.”
Finally, Michael Micheletti, director of corporate communications for Freedom Debt Relief suggests this tactic:
“If you want and need to, take time to explain to friends and/or family members that you are looking to change things a bit this year, and focus on making the holidays more meaningful. That may be finding ways to share experiences or establishing some criteria for gift-giving. Others may appreciate the shift more than you anticipate.”
Considering the Scope
Manisha Thakor, CFA, CFP, a financial expert at Tally, shares this advice:
“Set a gifting game plan so that you don’t go wide AND deep. This means spending a lot of money on many people. Instead, choose a total dollar amount that you will spend for all items this holiday. The optimal number is one that you will be able to pay for in full when credit card bills come in.
Then set your gifting plan. There are two basic choices here and both are good options. One is to go ‘narrow and deep’ where you select a small handful of people to buy gifts for this season and go full out.
The second one is to go ‘wide and shallow’ where you select a large number of people and give a greater number of gifts at smaller dollar values.”
Being Realistic
This is a key concept when it comes to holiday budgeting.
First, Kevin Panitch, founder of Just Start Investing shares this perspective:
“One important aspect of Holiday budgeting is to be realistic. Both in terms of how much you can save and how much you could be spending. I’m sure many of us would love to spend more on loved ones than we already do, but that doesn’t mean we should stretch our budgets so much that we can no longer achieve them sustainably.”
Next, Michael Micheletti, director of corporate communications for Freedom Debt Relief:
“Before you start in with dollars and cents, think about how you envision the holiday you want. Realistically, for most people, the holidays are about family, friends, fun, and peace, more than buying more stuff.”
Next, Matt Edstrom is the CMO of GoodLife Home Loans and makes a great point about holiday stress:
“Whatever irrational guilt you might feel from not spending enough on gifts will dissipate much faster than the guilt you’ll feel from putting yourself in any sort of debt. If you struggle with impulse spending around the holidays, constantly remind yourself of the stress that stems from debt.”
Elisa Robyn has a Ph.D. in Educational Psychology and recently transitioned from a 20-year career as an Academic Dean into private practice as a wealth relationship psychologist. She is an author, speaker, and radio show host. Her advice?
“My major piece of advice is to make financial decisions for the holidays from a sense of reality rather than dreams about how gifts will heal and transform family dynamics.
I advise my clients to take an honest look at what they can afford and then consider different ways to approach the holidays. Perhaps they can make a donation to a favorite charity in the name of the family and make this the only gift. Perhaps the family can draw names and each buys one gift.
When we have a strong emotional relationship with our finances we can make decisions that support our true values. Many of my clients offer to cook dinner for the entire family as their gift, sharing their cooking skills and giving the gift of time.
Stop and ask what people really value and want, and what you really value the want. Spend your money in alignment with these values.”
Divvying Up the Holiday Budget
A holiday spending budget should include more than just the amount of money spent on gifts. Katie Ross, Education and Development Manager at American Consumer Credit Counseling (ACCC) agrees, “When you create your holiday budget, don’t just think about gifts. Take into account travel expenses, decorations, cards, charitable donations, and other expenses that tend to occur around the holidays. ACCC has a holiday budgeting worksheet that can be helpful.
Holly Wolf, Director of Customer Engagement at SOLO Laboratories, Inc, shares this perspective:
“As a former bank chief marketing officer and personal finance junkie, here are my tips that I share with others to avoid holiday budget busters. It all starts with a realistic budget and tracking all of your expenses during the holiday season.
- Food — Making cookies, pies, big meals and cocktails. Have a budget for that. Many people forget to budget for nuts, liquor, a turkey, or ham. One pound of nuts can run nearly $20 as can just 4–5 pounds of butter. A premium turkey or ham could come close to $100. Toss in some liquor and your budget is busted.
- Hostess gifts, gift exchanges, work events — It’s easy to get off track with that $20 hostess gift to take to the neighbors get-together or friends’ annual party. Your book club or church Pollyanna exchange is only $20, but you may have 3–4 of them. How about the work exchange? Consider all these gift exchanges OR politely decline.
- Value over price — If you purchase an item on sale for $75 that is normally $100, consider the value of the gift, not the sale price. Don’t spend another $25 because you got it on sale.
- Holiday generosity — Many people get in the spirit by donating to charitable causes. If you’re purchasing goods for needy people, or purchasing items to put in the donation bin, you need to budget for those items. A $50 coat is a great gift for a child, but it shouldn’t bust your budget.
- Fundraisers — Your coworker’s son sells poinsettias, wrapping paper, or candy for the holidays and you want to help this worthy cause. Be sure to include the expense in your budget. That $20 of candy or $30 of wrapping paper is a hidden budget buster.
I have found that these are things people RARELY consider in their holiday budget.”
Sticking to Your Budget
Once the budget has been created and the contingencies prepared for, now you just have to stick to the budget that you created. It always seems like this is easier said than done. There are several ways to stick to your plan. Here are six expert tips to help you stick to your budget.
- Keep the list handy. “Once your budget is complete, start shopping. Put a copy of your list in your wallet, bag or phone. When you spot a gift you’re seeking at a price that matches your budget, buy it and cross it off the list. Stick another copy of your list on a receptacle at home where you can store the gifts (closet, basket, etc.). Check off the gift on that list as you place it there.” — Micheletti
- “Make a list ahead of time. Just like when you go grocery shopping, you’re more likely to overspend if you go unprepared. Have a list so that you know exactly what you need to get, and don’t end up getting anything extra.” —Ross
- “Shop around before you make a big purchase. Compare the prices at different stores, both online and at brick-and-mortar stores. See if any of them offer price-matching as well.” — Ross
- “Set reminders on your phone for when you go shopping, try to get into the routine of going shopping at a certain time every week, and set a reminder on your phone (depending on your phone, you may be able to attach the image of your budget on it), so every time you go shopping, you have the budget right there, and you’ll never forget.” — Gareth Seagull, founder of Finance Friday
- “Map out what stores (or websites) to visit in what order, and what to shop for at each location. If you are splitting up shopping with family members, be sure to detail who will shop for what, so you don’t duplicate efforts or expenditures. Shop at less-crowded hours whenever possible; if you don’t feel rushed, you’ll be less likely to grab the first item you see and risk overspending.” — Micheletti
- Focus on the task at hand. “As tempting as it is to buy a little something for yourself in the middle of all this Christmas shopping, remember that the holiday season is about giving! Don’t dent your budget by purchasing the designer purse that you’ve been eying all year. If you really want that, ask your husband, your boyfriend, or another family member to consider buying it for you.” — Best-selling author and Ramsey personality Rachel Cruze
- “Wait 24 hours before buying something, if you see an adorable teddy bear or a great big fluffy coat or some other impulse purchase, resist the urge, and wait 24 hours, think it over, ask yourself ‘Do you need item X?’ If the answer is ‘Yes, I physically can’t live without it!’ then obviously buy it. If not, wait, and maybe you’ll get it far cheaper in the post-Christmas sales.” — Seagull
Paying Upfront or Drawing It Out
Personal finance experts’ opinions vary on the best form of payment for shoppers to use. In the debate about cash, credit, and gift cards there are several opinions.
Shop with cash or debit — “Several studies have shown that consumers spend 15%–20% more when using a credit card than they do when using cash or a debit card.” — Micheletti
Shop with cash only — “When you go shopping for gifts, in order to stick to your budget, only bring cash and leave the cards at home. That way, once you’re out of cash, you’re done shopping, and there is no temptation to go over the budget and accumulate more credit card debt.” — Ross
Shop with credit cards only — “Use your credit cards, by that I mean the rewards that come from them, most credit cards offer some sort of rewards over the Christmas period in exchange for you using your credit card(s), just remember to pay them off at the end of the month.” — Seagull
Shop with gift cards only — If you have saved money via gift cards throughout the year, as Bednar suggested above, then all you need to do is remember your gift cards and leave the credit card at home. Another way to save with gift cards is looking for promotional discounts on the gift cards themselves, to save even more.
With all of that being said, incurring debt is a common way that people pay for their holidays, even with a budget in place. “The average household added more than $1,200 in debt last holiday season,” says Copeland, “and 28 percent of shoppers went into the shopping season still in debt from the previous holiday season.”
If you will be using a credit card for your holiday shopping, Greg Mahnken, a Credit Industry Analyst from Credit Card Insider has some advice to help you keep things under control. “When using a credit card,” says Mahnken, “you should plan to only spend what you can afford to pay in full before the bill is due. If you are making a bigger purchase this holiday season, and need to pay it off over time,” he suggests that you keep a few things in mind:
Interest charges can quickly overshadow any discounts or rewards you’d earn by using a credit card.
- Credit card interest can get expensive, so if you can’t pay off your purchase in full before the grace period ends, the costs can quickly outweigh any rewards that you may have earned on the purchase.
Deferred interest isn’t the same thing as a 0 percent APR introductory offer.
Deferred interest isn’t the same thing as a 0 percent APR introductory offer.
- Deferred interest is a financing offer that you may see at retail stores. They offer no interest if paid in full before the offer period ends. If you have a balance after the period ends, or if you make a late payment, you’ll often be charged interest on the starting balance, from the date you purchased it, instead of on the remaining balance. This can happen even if you only have a dollar remaining on the balance!
- An introductory 0% APR offer usually charges interest on any remaining balance after the period ends, not the full original balance.
- Always research the terms of a card before applying, and understand how you’ll be charged after an introductory period ends.”
The Superbowl of shopping is upon us. The whole year has been leading up to this event. We hope that these expert tips will help you develop your own financial gameplan. Knowing what to expect, how much to spend, and your strategies for saving and spending can help lessen the pre-game jitters and help you make the best decisions possible when you the big game. We’re rooting for you!
