Personal Finance

How to Budget Wisely During the Holiday Shopping Season

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Each year when the calendar turns to November, a realization hits that holiday shopping is bearing down on you. Even if you had an early jump on your shopping, there are likely gifts still on your list to purchase for friends and family members.

Holiday shopping can be a stressful endeavor; and that’s not just because trying to find the right gifts for everyone on time is difficult. Once all that shopping is finally completed and there’s nothing but crumpled up wrapping paper on the floor next to the Christmas tree, the bill comes due.

Even during a period of inflation and stagnant wages, consumers are spending significant money on holiday gifts.

A survey from Credit Karma determined that nearly a quarter of Americans expect to take on debt during this holiday shopping season. If you’re one of those people, that debt could put you in a cranky mood. But you don’t have to feel like Scrooge after this holiday season. Here are a few tips to avoid the financial pitfalls that can accompany a holiday shopping spree

Create a budget and stick to it

You might already create a budget for monthly expenses. Even if you don’t, drafting one for holiday spending is easy. Make a list of people for whom you plan to buy presents or other holiday gifts. Then decide how much you want to spend on each person.

Now comes the harder part — sticking to the budget. Making a plan is one thing; following through is another. But that follow through is the most important part.

Just the thought of spending money and incurring debt with the purchase of holiday gifts and events can be stressful. Brad Cummins, founder and CEO of Insurance Geek, says creating a budget can be a solution to these worries.

“Take stock of your financial situation and where money causes you stress. Write down ways you and your family can reduce expenses or manage money more efficiently. Then commit to a plan and review it regularly. Although this can be anxiety-inducing in the short term, writing a plan and sticking to it can reduce stress.”
Brad Cummins, CEO at Insurance Geek

Cummins cautions that commercialism can overshadow the true meaning of the holiday season, noting it’s important to remember that friends, family, and relationships are more valuable than material possessions.

Use the envelope method

It’s true that we’re becoming a more cashless society by the day. Credit cards, debit cards, and smartphones are now the preferred methods of purchase. But good old-fashioned cash can come in handy when creating spending limits.

Kari Lorz, a Certified Financial Education Instructor and founder of Money for the Mamas, advises cost-conscious shoppers to slip some cash into envelopes — an approach that acts as a barrier to overspending during the holidays.

“Determine how much money you want to spend, then take away 10%,” Lorz said. “Divide the rest between gifts, entertainment, decorations, and holiday meals. Withdraw the total amount and divvy it up into your envelopes, with one containing the 10% you set aside. That envelope will be your inflation fund.” 

Why an inflation fund? It’s no secret that inflation is pummeling the consumer — reaching its highest level since 1990, up 6.2% since last October. With prices high for everything from gas to groceries, it’s helpful to have a little extra set aside. Regardless of whether you dip into the inflation fund, once the money from the envelopes is gone, it’s gone. Cash is a finite resource, and in this case, it will keep you from overspending and prevent that debt snowball from rolling downhill.

Get creative with alternative holiday gift options

Another way to manage your holiday spending is by considering alternative approaches to traditional gift purchases. A secret Santa exchange, where you only buy for one relative or friend, can help cut back on costs, says Baruch Silvermann, CEO of The Smart Investor, a free financial academy for millennials.

“If your holiday spending projections look a little high, you can make a few creative cuts to avoid getting into debt,” he said. “You won’t be alone, and many members of your family and friends may also be feeling the pinch. This is the ideal time to discuss how to cut the costs of holiday shopping, so you can avoid any hefty bills in the new year.”

Other gift alternatives and ideas include:

  • Babysitting for family members 
  • Blowing snow (or raking leaves or mowing the grass) for a neighbor
  • Creating homemade gifts
  • Baking holiday meals or treats
  • Buying from local shops instead of big box stores
  • Giving stocking stuffers instead of more expensive gifts

It may sound cliché, but often it is the thought that counts. Doing something thoughtful for a friend or family member — such as babysitting, baking, or shoveling snow from their driveway — can have a bigger impact than an expensive gift. Remember, it takes commitment to make these tips work to your advantage. Santa is known for making a list and checking it twice. Take a lesson from Old Saint Nick — make a budget, check it twice, and stick to your plan. That wisdom will keep you from accumulating debt, leading to a merrier holiday season and a happier new year.

 

How to Budget Wisely During the Holiday Shopping Season

This blog was published by Axos Bank on December 17, 2021 and last updated on December 17, 2021

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