Our favorite things about the upcoming holiday season:
- Visiting with family and friends
- Sparkly décor and general festivities
- Gifts (we're just being honest)
- As much hot chocolate or anything pumpkin flavored as we want, sans judgment
Our least favorite parts of the holiday season:
- Air fare to visit family and friends
- How all that fun holiday-themed décor adds up
- Shelling out for gifts (again, being honest)
- Sugar coma from the pumpkin spice lattes and guilt about all that hot chocolate
Admittedly, we can't help you very much with that sweet-hot-beverage addiction, but we can help you get through holiday madness with your financial health intact. As reader Mara put it:
"I am back in debt, but not by much. I want to pay this up by January so this year I will not be buying too many Christmas presents."
Smart! And yes, there is a way to celebrate the holidays in style and show everyone you love them, without winding up in the red yourself.
So, well in advance of Christmas, Hanukkah, Kwanzaa or whatever you celebrate, we'll break down the four easy steps to budgeting for this year.
1. Decide where holiday spending fits in your budget
LearnVest lives by the 50/20/30 Rule, which states that 50 percent of your take-home pay should go toward essential living expenses like rent and food, 20 percent should go toward financial goals like retirement contributions and debt payments and 30 percent should go toward your lifestyle choices, which are the personal, and often fun, decisions you make about your money. Lifestyle choices often include things like your cable bill, charitable giving, entertainment, hobbies, etc.
Although holiday spending often feels essential — How can you not give your mom a gift?— it falls into this 30 percent allocated to lifestyle choices.
Of course, if you are planning for holiday travel, gifts and more, you’ll need to bake them into your budget. And unless you already had a ton of wiggle room, this will probably mean cutting back in other areas to make up the difference. We'll show you how below.
The good news? If you start now, you're less likely to feel the pinch, less likely to make spendy, last-minute impulse-present buys and more likely to get a plane ticket for a price that won't eat up your whole gift budget.
2. Calculate how much you can spare
The easiest way to calculate where your holiday budget is coming from is to log in to LearnVest’s Money Center to see your spending trends. These are already grouped in your financial inbox according to the 50/20/30 Rule, so you can see at a glance what percentage of your income you’re spending on lifestyle expenses.
If you have money left in your lifestyle choices before the 30 percent mark, you can allocate the leftovers to holiday spending — and create a special color-coded folder to account for it. If not, it’s time to trim back.
Could you free up enough for holiday travel by cutting a dinner out once a month or temporarily stretching your time between salon visits? How about freezing your gym membership for two months and starting anew in January? You'd be amazed by how easy it is to free up funds when you see exactly how much you're spending on what is laid out before you.
You can even set a specific savings goal for the holidays and play with various contribution amounts per month to see how far they would get you.
3. Obey the seasonal spending commandments
These are a few easy rules to follow to make sure your holidays are happy and financially healthy:
- Never go into credit card debt for holiday spending.
- Never dip into your emergency fund for the sake of buying gifts or decorating your home.
- Never go into credit card debt for the holidays. Seriously. Ever.
Does that mean you don’t have a lot of cash to spare for gifts for your loved ones? We have a feeling they’ll love you even if you don’t drop a boatload of cash for gifts for them.