8 Tips to Make a Holiday Budget

To enjoy the season with family and friends without financial stress, it’s a good idea to plan ahead. Creating a holiday budget that fits your goals may help you figure out in advance how much money you’re able to comfortably spend during the holidays.

Making a holiday budget might feel like a difficult task. To make it easier, we’ve put together a list of eight holiday budgeting tips and ways to pay for your holiday spending.

1. Review last year’s holiday expenses

A good place to start your holiday budget to look at what you spent last holiday season. You might not have all your receipts, but reviewing your credit card bills, bank statements, or past orders may help identify how much you spent and on what.

Consider setting up a spreadsheet for this year’s holiday costs. Or you could collect your physical and online receipts to help kickstart your budget planning for next year.

2. Plan how much to spend

After you know last year’s holiday spending, think about what you might want to do differently this year.

Consider whether your financial situation has changed. Has your household income increased or decreased? Did you move to a larger home that might need different decorations? Have there been new additions to your family that add to your gift-giving list? Comparing last year’s holiday expenses to this year’s needs may help you start to develop a realistic holiday budget.

3. Categorize your holiday expenses

Your holiday spending may be about more than gifts. Consider the other categories where you spend money during the festive season.

Your review of last year’s spending, combined with your assessment of this year’s plans should help you categorize your expected holiday costs. Then you can set a dollar limit for each. Having a spending limit is critical to aligning your spending to your budget. To help you get started, here are some common holiday expense categories:

Gifts

Gifts might be the most expensive part of the holidays. In 2023 Americans spent an estimated $975 each on Christmas or other holiday gifts, according to Gallup.

To develop your gift budget, make a list of everyone you want to give a present to. Keep in mind that your list might extend beyond family and friends. It could also include your children’s teachers, your coworkers, mail carrier, dry cleaner, and others.

With list in hand, consider what you’d like to give each person and estimate the cost. Be sure to remember the expense of wrapping supplies, as well as the cost for any shipping or postage.

Photos and Cards

To celebrate the season, you might want to share holiday photos and cards with family and friends. Planning ahead here can help you save on costs. For example, you could use an online printing service and take advantage of seasonal sales. Or you could make your own cards, buy cards in bulk, or limit the number of people on your mailing list.

Another option would save you the costs of printing and postage entirely: consider sending out digital photos or e-cards. You might even donate a portion of your savings to charity after choosing this environmentally friendly alternative.

Food and Entertainment

The holiday season often revolves around good food and going out with family and friends. If this sounds like your life, food and entertainment may be a big spending category for you.

Your food-related expenses could include everything you need for a special meal at home, a dish for a company party, or the ingredients to bake holiday cookies with the kids. Or it may mean dining out.

Costs for entertainment might include tickets for seasonal theater, concerts, or outdoor excursions. Even office parties can sometimes lead to extra holiday expenses.

Clothes

Whether you’re buying new clothes for a holiday dinner at your favorite restaurant, outfits for children to wear at celebrations, or warm boots for a sleigh ride, clothing can be a big expense for any holiday.

Think about what events you have planned and what new clothes you might need to be well prepared for festivities.

Travel

Maybe you’ve moved across the country and plan to fly home for the holidays. Or perhaps you’re planning to take your family on a winter getaway. Depending on your situation, travel costs could be a pricey item in your budget.

Before booking, it’s wise to compare your travel options. Connecting flights may be cheaper than a direct option, or you might choose a train or bus. To save on costs, always consider packing your own lunch and snacks for the trip.

Decorations

Giving your home a festive look can be one of the best parts of the holiday season, but the costs can add up quickly. Lights, wreaths, a tree, decorations, and much more can put a dent in any budget if not carefully planned.

To save on expenses, consider what new décor you need to purchase or if there might be ways you and your family could create your own decorations. Thrift stores and fall garage sales may be great places for gently used, fun options.

Donations

If you want to donate money to charity during the holidays, your budget can help you decide how much you can afford. To maximize your giving, you might also check if your employer matches donations during the holiday season.

If you can’t afford to make a cash donation to a charity, you might consider donating clothes or volunteering to give without spending.

4. Start planning and saving early

The earlier you begin saving for the holidays, the better. You might consider putting money each month into a separate savings account dedicated to the holidays. Often called a “sinking fund,” this is an account that you create for a specific purpose. To make saving easier, consider setting up automatic deposit so that a portion of each paycheck goes into the fund.

5. Shop for gifts throughout the year

Your holiday shopping doesn’t have to wait until the last minute. Keep an eye out for sales throughout the year and take advantage of the best deals for gifts well ahead of time.

Shopping year-round also allows you to spread out your spending. This may reduce the financial strain of making many purchases in a hurry. It might also make it easier to stick to your budget. For example, you might save money by shopping on Black Friday, Cyber Monday, and earlier in the year during Labor Day or end-of-season sales.

6. Look for other savings opportunities

There are many other ways you could reduce your overall spending for the holidays. You might begin by taking stock of what holiday décor, foodstuffs, and clothing you already have tucked away.

Maybe you can gift or regift unopened packages, cut back on your guest list for holiday parties, or host a potluck-style gathering. If you’re crafty, you might give homemade gifts – think of jams and pickles, knitted or crocheted items, framed family photographs, and other thoughtful, personal gifts. If you have a big family or a group of friends, you could plan a secret or random gift exchange to limit the number of presents you need to buy. It’s also wise not to shop for yourself until January, when you can take advantage of post-holiday sales.

7. Build in a financial cushion for unexpected expenses

Keep in mind that surprise expenses can often pop up during the holiday season. Leave some wiggle room in your budget to help cover unexpected costs such as a family member showing up for a surprise visit, remembering a last-minute gift, or paying for express shipping.

In the end, you may end up with extra money, but that’s great news. You could get a head start on next year by putting the leftover money into a sinking fund that’s dedicated to your next holiday budget.

8. Plan how to pay for holiday expenses

When it comes to paying those holiday bills, you have several choices. The key is choosing the right one for your situation. Here are some options to consider.

Savings

If you’ve put money aside in a dedicated fund, you’re one step ahead. You can use these savings to pay for some or all of your holiday expenses.

Credit card

You could place holiday expenses on your credit card. The exact amount you can spend on your credit card will depend on your credit limit and your current balance. Keep in mind that credit cards have variable interest rates, so if rates increase, you could end up paying more. They are also a form of revolving credit, so your balance may grow if you use the card for post-holiday expenses. As you weigh this choice, consider if you can pay the balance off quickly so you don’t end up paying a lot in interest.

Buy now, pay later

To purchase a gift, you might take advantage of a buy now, pay later plan. This option allows you to make a partial payment at the time of purchase and then pay off the remaining balance over a short period, typically in four installments over six weeks. Not all retailers offer these plans, however, and the funds can only be used for the item you’re buying.

Personal loan

Holiday loans are another option that might help you during the season. Using a personal loan may give you the funds you need for any holiday purchases, from decorations to gifts for the family to a dream trip abroad for New Year’s Eve.

As an installment loan, the money you receive can be paid back with one set regular monthly payment, and you’ll know precisely when the loan is due to be paid off. At Discover® Personal Loans, you can design your loan around your financial situation. Pick the amount you need and the repayment term from options offered to fit your budget.

After all your planning, enjoy the holidays

The holidays are meant to be a joyous time of celebration, with time to spend with loved ones. By carefully planning your budget and how to pay your holiday expenses, you have the chance to reduce your financial stress and make the most of the season.

If you’re interested in learning more, you can use our personal loan calculator to estimate your monthly payments based on loan amount, your credit score, and the repayment term of your loan.

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The information provided herein is for informational purposes only and is not intended to be construed as professional advice. Nothing contained in this article shall give rise to, or be construed to give rise to, any obligation or liability whatsoever on the part of Discover Bank or its affiliates.