The holiday season can bring joy, but financial stress often casts a shadow over the celebrations. Planning your holiday budget ahead of time is a key way to minimize financial pressure, says financial educator Patrina Dixon, CFEI, RFC, founder and CEO of It’$ My Money. By focusing on travel, meals, and gifts, you can stay on track and enjoy the season without overspending.
While inflation has eased slightly since the historic highs of 2022, prices remain higher than the Federal Reserve’s goal of 2% inflation. This means holiday expenses could still feel steep, so preparation is more important than ever. Here are four ways to budget effectively for the holidays:
1. Start with a General Budget
Before diving into holiday-specific expenses, it’s crucial to create a general financial plan. Dixon recommends starting with pen and paper to manually record your income and expenses.
“Pen and paper are always my go-to, followed by Excel,” she explains. Writing out your budget helps you gain a deeper understanding of your financial flow. Once you’ve mastered this, budgeting apps can simplify the process.
2. Plan for Travel and Transportation
Holiday travel can be costly, especially if planned last minute. Dixon advises booking travel as early as possible to lock in better prices.
“Flight prices rise as the departure date approaches,” she notes. Advance planning gives you time to explore deals and use travel credit cards for rewards. Some top-rated cards for travel perks include the Chase Sapphire Preferred® Card and Capital One Venture Rewards Credit Card.
If traveling isn’t feasible due to your budget, consider setting boundaries. “Be comfortable saying, ‘I can’t make it for Thanksgiving, but I’ll come for Christmas,’” says Dixon. Reducing travel expenses can free up funds for other priorities.
3. Save on Meals and Gatherings
Food costs remain a significant expense, partly due to recent inflation. Instead of hosting and shouldering the full expense of a holiday meal, consider organizing a potluck.
“This not only shares the cost but allows other family members to showcase their talents,” Dixon says. Additional savings tips include using coupons, shopping at discount or bulk stores, and taking advantage of grocery rewards programs like Ibotta.
4. Be Smart About Gift Giving
Gift giving can quickly stretch your budget. Dixon suggests making a list of recipients, noting what you’d like to give them and setting a spending limit for each.
If you save money on some gifts, consider depositing the surplus in a high-yield savings account, which can offer 4% to 5% APY. Additionally, check for unused gift cards. These can be a valuable resource for holiday shopping. “Pull out those gift cards and check the balances. They could help cover the cost of gifts,” Dixon advises.
For more cost-effective and heartfelt options, consider sentimental gifts like framed photos of meaningful moments. They’re personal, thoughtful, and budget-friendly.
By planning early and focusing on these key areas, you can reduce financial stress and make the most of the holiday season. Building a thoughtful budget allows you to celebrate without compromising your financial goals.
