How to build a holiday budget

Holiday spending can add up quickly. From buying gifts to traveling, entertaining, decorating, and even cultivating a holiday wardrobe, you may have a lot on your holiday shopping list. However, a holiday budget can help you avoid racking up debt that carries over into the new year—all while still being able to pay your day-to-day expenses. By preparing a holiday budget ahead of time—and sticking to it—you’ll be better equipped to make it through the holiday season without breaking the bank.   

6 ways to build a holiday budget that will work every year  

The holidays are often a joyful time, but they can come with steep expenses and lots of stress if you’re not financially prepared. A holiday budget can help ensure you’ve got enough money to cover your holiday expenses—as long as you stick to it. Consider these strategies to build a holiday budget that will work year after year.^[1]  

1. Consider last year’s spending 

The first step to planning your holiday budget is to understand what you spent money on last year. Take a look at your bank account or credit card statement to gauge your holiday expenses in the past. Make a list of everything you bought or spent money on for the holiday season. Don’t forget to include holiday-specific purchases you made in advance, like gifts and flights.  

Reviewing last year’s expenses can help you understand how much you spent, what you bought, and how you paid for everything. Look closely at your purchases. What payment method did you use—cash, credit cards, a special savings account? How much did last-minute purchases add up to? How much did you spend on gifts? On travel? On hosting? What about holiday pictures or cards? Are you still paying off any debt from last year? 

2. Set your spending limit 

Just like a traditional budget, your holiday budget should be limited to the cash you have available after paying all your monthly expenses. If you’re coming up short, you might consider using some of your savings, but be sure to leave extra padding for your emergency fund. It might also be a time to eliminate extras—like paying to have your groceries delivered—at least until the holiday season is over.  

The goal is to set a spending limit based on your cash flow without putting too much strain on your overall budget. Don’t forget to consider ways you can stretch your holiday budget like making DIY gifts, skipping travel, or upcycling decorations.  

3. Create holiday budget categories 

To better track your spending, create categories for all your usual holiday expenses. Categories can include things like gifts, holiday cards (plus postage), decorations, entertainment, hosting, and travel. Split up your holiday budget among these categories, making sure not to exceed your spending limit.  

You can still shift the dollar amounts around to different categories if needed, as long as the total stays within your budget. For example, you may plan to spend 75% of your gift budget on family presents, leaving the remaining 25% to be spent on holiday tips, host gifts, and other types of gifting. If you decide you need more of the budget for family gifts, you can cut spending on others.   

4. Make a gift list 

Deciding ahead of time who will be on your gift list—and assigning a dollar amount for each of them—is just as important as setting your spending limit. At first, you may feel a little stingy if you have to make some cuts. However, effective budgeting often comes down to making tough decisions.  

If you can’t cut back on the number of people you have to buy for, consider revising your budget to afford smaller items for friends, coworkers, and extended family. Or, you can choose to keep your gift lift the same, but make cuts in other areas of your budget, like skipping expensive tickets to a holiday show. Remember, it’s your budget, so you get to make the rules.  

5. Plan ahead 

To maximize your time, reduce stress, and make the most of your budget, start preparing for holiday spending about six months in advance. Even if you’re not quite in the holiday spirit during the summer months, planning early offers many benefits. 

Setting your holiday spending limit and getting your budget in order early helps minimize holiday stress and allows you to prepare financially. You’ll have more time to bulk up your holiday savings, pay off past holiday debt, and take advantage of any sales or promotions during the summer months. Good planning can also help you avoid impulse purchases and stick to your budget. 

6. Figure out how you’ll pay 

To avoid racking up debt, commit to a cash-only holiday budget from your income, savings, and any money you earn on the side. This can be especially helpful if you think you’ll overspend when using credit cards. If you do use your credit cards, try to pay off the balance by the end of the grace period to avoid interest.  

You may also consider using a Buy Now, Pay Later (BNPL) service to split the cost of purchases over time. BNPL can be helpful for large purchases like expensive airline tickets or large gifts—especially if you’re able to secure interest-free financing. Just be sure you can make your scheduled payments on time.^[2]  

How to stick to your holiday budget 

Creating a holiday budget can help you stay organized financially and avoid overspending, but sticking to a budget isn’t always easy. It can be tempting to just get one more thing, or to dip into your holiday savings for a vacation. Setting goals can help you stay on track with savings or early gift-giving.  

For instance, set a goal to save a certain amount each week or to hit a certain amount in your savings by a specific date. You can also set goals around when you want to have all your shopping done. Consider what works best for you. Do you want more time to save and make all your purchases during the holiday? Or will shopping early help you save, reduce last minute purchases, and give you more time to relax? Remember, you can make adjustments based on what works for you.  

The bottom line 

Just like any other budget, a successful holiday budget comes down to planning. The sooner you start making your plan, the better. Committing to a cash-only budget, setting a spending limit you can stick to, and saving enough to cover holiday expenses can help you make the most of the giving season and avoid lingering debt. If you’re still paying off last year’s holiday credit card bills, don’t be too hard on yourself. A debt consolidation loan can help you get back on track.  

1. Consumer Financial Protection Bureau. “Budgeting: How to create a budget and stick with it.” 

2. Consumer Financial Protection Bureau. “Buy Now, Pay Later Product FAQs.”