How to Adjust Your Budget Now for Upcoming Holiday Spending

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The winter holidays roll around every single December, and despite gift shopping not being an unexpected expense, somehow many of us feel blindsided each year. The cost of buying gifts is nothing to sneeze at, either. In the U.S., consumers spend an average of about $1,000 on gifts every winter, according to data from the National Retail Federation.

Failing to budget for gifts might mean putting purchases on credit cards and paying them off well after the holidays. Going into debt for holiday gifts is not ideal—you may owe hefty interest fees, your higher credit utilization ratio could hurt your credit score and debt payments could impact your ability to afford more important expenses. With some preparation and adjustments to your budget now, however, holiday gift shopping will be more manageable and you'll be able to start off the New Year in better financial shape.

How to Make a Budget

Living on a budget helps you plan for both ongoing and one-off expenses. While some view it as restricting, sticking to a budget can actually grant you more financial freedom if it means you're not weighed down by overspending. A healthy budget helps ensure you have all your essentials covered, and designates some money for the fun things in life like impromptu shopping trips and travel. If you stick to it, you'll avoid the stress that comes with living beyond your means, accumulating debt and missing bill payments.

Even if you've never made a budget before, it isn't a difficult process. You start by assessing your monthly household income, then your regular monthly expenses. It helps to break down your expenses by category, or by what's necessary (rent, utility bills) and what's optional (luxuries, entertainment).

Going over your recent bank and credit card statements can give you a realistic overview of both your income and your expenses. If your income covers all of your expenses and then some, it's key to figure out your goals and map out how to use your surplus cash. Whether it's paying off credit card debt, saving for retirement or setting aside money for holiday spending, having a plan ensures the right amount of money goes toward each goal every month.

There are various budgeting strategies and plans depending on your preferences, and budgeting is possible even if you're on a low income. You can make it as detailed or high-level as you want, and you can create it on paper, in a spreadsheet or through budgeting tools like Mint. It's important to choose a method that works for you, as a budget is useless if it's too complex or restrictive for you to actually stick to. As you live with your budget, you may need to adjust the amounts you set for spending categories so they better reflect the reality of your lifestyle.

Make a habit of reviewing your budget for each month well in advance, so you can adjust your budget for one-off expenses such as car maintenance if need be. This could require temporarily cutting back in other areas so you can divert funds rather than taking on debt.

How to Adjust Your Budget for the Holidays

If you're a big spender for the winter holidays, it's optimal to start preparing your budget in advance so you're not hit with a major expense all at once.

One way to do this is to save for the holidays throughout the year. For example, you could set up a dedicated savings account, and have a certain amount—say, $75 or $100—automatically transferred to it from your checking account each month. This ensures the money is saved, and removes temptation to spend it. Then, by the time the holidays roll around, you'll have your shopping money with no need to go into debt.

When you can't afford to save up year round, the next best thing is to start a few months in advance of the holidays. This could look like:

  • Cut costs elsewhere. Find ways to cut costs in other areas, and set aside the difference for your holiday gift fund. Consider temporarily canceling streaming services or any other subscriptions you don't use often.
  • Save money on bills. Check to see if your recurring bills are on autopay, since some utilities like cable, internet and cellphone companies offer discounts when you pay via automatic payments. (Be sure you have enough money in your account so you don't become overdrawn.) Call your service providers to see if they can reduce your costs, or explore your options for cheaper packages from other companies.
  • Boost your income. If there's no room to cut back on spending, the alternative is to look for ways to bring in more income. You could start offering to walk neighbors' dogs, babysit friends' kids or look for part-time seasonal retail work. If you need more flexibility, consider a side hustle for a few months through on-demand apps for tasks like driving for a ride-hailing, food delivery or grocery delivery service.

How to Stick to Your Budget

No budget is foolproof, and there's always a temptation to overspend. You could freeze your credit card in a block of ice to avoid using it, but first try these tactics to stick with it:

  • Rely on tools. There are plenty of apps that allow you to set up custom budgets. Many even can alert you if you're close to overspending in a budget category. These tools can help you ensure you don't spend more than you've budgeted or, if you already have, rebalance your budget to ensure you can afford all other expenses.
  • Reduce impulse spending. Find ways to make it harder to spend money you don't need to. This could mean removing your saved credit card from shopping sites or doing grocery shopping online to avoid in-person impulse purchases.
  • Go old-school. If you tend to overspend with your credit cards, one option is to try the envelope method. This technique has you withdraw cash and put money aside for each spending category in its own paper envelope to ensure you don't spend beyond your means. Once the money is gone for that category, it's done for the month. If you run out of one—say, money for food—you have to take it from another envelope. Instead of handling cash, however, some find it more practical to use digital banking apps to accomplish the same result.

Keep Your Credit Shining

To avoid taking on debt you're stuck paying off well into the New Year, it's a good idea to start preparing for holiday shopping early. If you do end up relying on credit cards or other forms of debt for your holiday gifts, it's important to understand how this can impact your credit score. Try to keep your credit card balances low, pay all your bills on time and check your free credit report and credit score to make sure your habits are helping—not hurting—your credit score.

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