Five ways to avoid overspending during the holidays

The average household spends $1,463 on holiday shopping and over a third of Americans will head into the New Year with debt due to end-of-year spending. Adding in inflation and the rising cost of items, many people may experience extreme financial stress when the holiday season arrives. Gift-giving can be a fun and exciting experience, but you also don’t want to go beyond what your budget allows, putting you in a tough financial spot. By creating a holiday budget and putting a plan in place early, you can help curb overspending and greatly reduce money stress surrounding this time of year. Here are five budgeting tips to control holiday spending.

1. Set your holiday budget

Creating a budget with clear limits is an important step in managing holiday spending. When you set the maximum amount before heading into the holidays, you are more likely to steer clear of unnecessary expenses and can better prioritize how your money will be spent. This budget should also include food and drink costs, purchases needed for events or gatherings, and travel expenses.

In 2021, Americans planned to spend approximately $998 during the holidays, with roughly $600 for gifts, $200 for food and decorations, and around $100 for non-gift purchases. If these amounts make sense for your financial situation, break down your budget into these categories, or make adjustments to more closely match your circumstances.

Ways to budget for holiday spending

Whether you prefer a handwritten log or helpful technology, there are multiple ways to maintain a budget and keep track of expenses. It can be as simple as keeping a running tally of your expenses in a notebook or spreadsheet and updating your remaining amount, or you can take advantage of numerous budgeting apps that let you track spending, categorize expenses, and connect with your accounts. You can set limits for each of these categories and many apps will notify you if you’re getting close to these amounts. No matter what method you choose, actively monitoring your spending will help set you up for success.

2. Set up a holiday savings account

Setting up holiday savings account through a financial institution is a helpful way to set aside money year-round that is only accessed for the holiday season. You can routinely deposit money to this set account, and since many of these accounts can only be accessed after a set date, you can avoid dipping into these savings for other purposes. Several of these accounts also allow you to earn interest on your balance and make unlimited deposits. Check with your bank or credit union to see if they offer holiday accounts and set up automatic deposits to help build up your funds.

3. Plan to avoid debt during the holidays

A good goal to strive for during the holidays is to avoid racking up debt that you are unable to pay down in a reasonable amount of time. By establishing a budget early in the year, you can begin to set aside money specifically for holiday expenses. If you have this money only allocated for holiday-related purchases, you can then pay off your credit card bill in full or in much less time and avoid interest fees and beginning the New Year in debt.

4. Tips for avoiding holiday debt

If the holiday season raises your stress levels, you’re not alone. More than half of Americans are feeling wary about the financial strain of the holiday season. Along with proper preparation and budgeting, there are a few other ways to help lessen holiday anxiety and let yourself focus on enjoying time with family and friends. If possible, begin shopping well in advance, allowing the costs to be spread out and more easily paid. Look for sales and items on clearance throughout the year that can be set aside. You can also discuss other gift ideas with your loved ones, like exchanging homemade gifts, taking a day trip together, planning a movie night, or signing up for a cooking class.

5. Prepare for the impact of inflation

Holiday shopping inflation is a big concern for many people, where 2 in 5 Americans say inflation will change their holiday shopping habits this year. Inflation is currently around 40-year highs, making it even more challenging to stretch every dollar and avoid going into debt as purchases ramp up. You may need to decrease the number of items you buy this year, find inexpensive and creative ways to celebrate with loved ones, and take advantage of coupons and discounts as much as possible. Some websites and apps allow you to compare shops to find the best deals.

6. Practice good spending habits year-round

Getting your year-round spending habits in top shape will not only put you in a better position for the holidays but can lessen financial strain in the months before and after. As you review your finances, try to spot any places you can cut costs. Are there streaming services or memberships you no longer use? Can you cut back on impulse buying, eating out at restaurants, or food delivery? Good money habits can be valuable tools in combatting overspending and improving your overall financial well-being.

7. How do I control my spending?

Budgeting and finance tracking apps are not only great for the holidays but can help keep you track of your spending all year long. Many apps allow you to conveniently track your budget on your computer or mobile device and can reveal valuable insight into your spending habits. Where is your money going each month? Are there categories where you could cut back your spending? By knowing exactly where your money is going throughout the year, you can be better informed about how to save more and spend less.

As the holidays approach each year, you may feel a rise in financial stress, but the more you plan and take a proactive approach to budgeting, the better chance you’ll have at being able to relax during the holidays, keep your debt level down, and start the New Year in a solid financial position.

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REV 11/2022