How to Make a Holiday Budget

Quick Answer

You can make a holiday budget by listing your expenses, determining how much you can afford to spend, tracking purchases and freeing up money.

Woman finalizing holiday budget on mobile device.

We've all felt the pinch of inflation this year, which suggests that this holiday season could be an expensive one.

In 2021, consumers planned to spend close to $1,000 on gifts, holiday items and other goodies, according to the National Retail Federation. While overall holiday spending growth projections are lower for 2022 than last year, the higher price of goods means you may be spending the same amount of money but actually getting less.

Planning ahead can help you avoid overspending. Start by preparing early, making your gift list and determining how much you can reasonably afford. Here's a simple checklist for creating a holiday budget that works for you.

1. Start Early

You still have some time to prep your budget ahead of the holiday season. The first step is estimating what your total holiday spend will be. Looking at what you spent last year is a good place to start. (You can review your bank statements if you're having trouble remembering.) Now look ahead and think about what your financial responsibilities will look like this year.

Like any financial goal, the sooner you start saving, the better. After the holidays are behind you, add up what you spent in all and divide that number by 12. This can be a line item you add to your monthly budget going forward. If you set aside $100 a month, for example, you'll have $1,000 saved by the end of October.

2. List Your Expenses

Holiday expenses usually go beyond gift giving. See if you can ballpark how much you'll spend in each of the following categories:

  • Gifts: This includes your family, friends, kids' teachers and holiday tips for service providers like babysitters or your mail carrier. Holiday donations go in this category as well.
  • Decorations: No matter what you celebrate, you'll want to plan ahead for home décor. That might include lights, ornaments, a Christmas tree, lawn decorations and more.
  • Holiday travel: Whether it's a holiday vacation or round-trip flights to your hometown, holiday travel can add up fast. If you're taking a road trip, don't forget to budget for gas.
  • Food and entertaining: ‘Tis the season for holiday parties. If you're expecting to play host, you will need to think about food, drinks and if your guests will be chipping in for the festivities. If you plan on attending holiday parties this year, you might also be on the hook for secret Santa or white elephant gift exchanges.
  • Unpaid time off: This is an especially important point for freelancers and self-employed folks. In the same vein, if this time of year is normally a slow season, being prepared can help you pad your budget.

3. Determine How Much You Can Spend

Once you have a total number in mind, you can build your holiday budget. Begin by looking at how much discretionary income you typically have each month.

When all your bills are paid and you've set aside money for your financial goals, roughly how much do you have left over? You can funnel some of this surplus into your holiday fund. If things feel tight, see if there are any expenses you can trim, either temporarily or permanently. Some ideas include:

4. Track Your Spending

To help stay on budget and avoid the big, scary January credit card bill, be sure to track your spending—whether you use a credit card, debit card, cash or any other payment method. There are a few ways to go about it:

  • Log in to your bank account regularly to review your transactions.
  • Hold on to your receipts and deduct the totals from your budget as you go.
  • Keep a note in your phone that shows how much you can spend in each category. Every time you make a holiday purchase, update the numbers.
  • Opt for a budgeting app that will track your spending for you.

You can tweak your holiday budget along the way if some things end up costing more than you anticipated. That may require you to reduce spending in another area to even things out.

5. Find Other Ways to Free Up Money for the Holidays

If running the numbers for your holiday budget gives you sticker shock, you can look for other ways to save money this holiday season. That might include allocating less to certain categories or removing others altogether. Here are some ideas:

  • Instead of buying gifts for each one of your friends or family members, see if the group is open to doing a secret Santa exchange—then you'll only have to buy one gift.
  • Pare down your gift list, spend less on each gift or consider homemade gifts.
  • If hosting a holiday party, opt for a potluck or BYOB setup.
  • Take advantage of holiday sales like Black Friday and Cyber Monday.
  • Cut back on holiday travel. If you really want to visit family members, consider going at a different time of year when flights and other expenses may be cheaper.
  • Bookmark your favorite sites and sign up for email newsletters so you'll be the first to know about holiday sales.
  • If you've got an end-of-year work bonus coming your way, put it toward your holiday budget.
  • Pick up a side gig to increase your income before the holidays get here.

The Bottom Line

A holiday budget can help you avoid overspending and start the new year off on the right foot. It comes down to making a plan, preparing your finances and making changes as necessary.

Using rewards credit cards is another way to potentially save this holiday season. Just be sure to pay off the balance in full each billing cycle to avoid interest charges. When done right, rewards cards can unlock cash back and other worthwhile perks.

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