Holiday Budget: How to Stop Spending (So Much) Money This Season

Last year, Affirm’s Consumer Spend Report indicated that 70% of Americans exceed their holiday budget each year¹ – and half of them said they feel pressured to do so. This overspending is even more common among millennials: American Express found that 86% spent more money than they intended for the holidays last year.²

It’s not just holiday gift-giving that can drain your budget. The American Farm Bureau Federation reported that the average cost of a Thanksgiving dinner shot up 14% in 2021,³ and that was before meat and produce prices increased in 2022.

Then there’s the cost of decorations, holiday activities, charitable donations, and even the electricity to power your Christmas lights. The holidays might be full of festive cheer and time with loved ones, but it’s clear: Most of us are exceeding our holiday budget, which has a real impact on our finances.

The best way to fix your holiday spending habits is to create a monthly budget and stick to it all year, even when the holiday season approaches.

For some, this might mean allotting a set amount of funds each month to buy Christmas presents throughout the year. Others might prefer to put money in a savings account each month, then use it to purchase gifts all at once, closer to Christmas.

No clue how to start budgeting? Try the 50-30-20 budget or zero-based budgeting methods.

50/30/20 budget

The 50/30/20 budget rule is simple. It breaks down your take-home income into three categories: needs, wants, and savings or debt. From each paycheck, you will:

• Use 50% on needs. This category includes monthly expenses like rent, groceries, utilities, and transportation.

• Use 30% on wants. This percentage allows you to spend money on things you enjoy, like dining out, streaming services, and clothes.

• Use 20% on savings and debt. This final category covers everything from student loan and credit card payments to retirement and savings account contributions. You can save for things like a house down payment, vacation, and – you guessed it – holiday gifts for friends and family.

While it’s wise to use some of that 20% of your monthly income on things like funding a 401(k) and paying off credit cards, you can put some of those funds into a savings account. Earmark some money for Christmas presents, and don’t touch it until you’re ready to shop!

Zero-based budgeting

Zero-based budgeting works similarly to the 50/30/20 rule, but the allocation of your income isn’t so strict. With zero-based budgeting, your goal is to account for 100% of your monthly income so that you end with zero.

That doesn’t mean spending all your money until you run out. Instead, it means setting aside a certain amount for expenses and using the rest of your income for other purposes, like paying down debt, making IRA contributions, and saving money (like for holiday spending).

Building a budget that allows for guilt-free holiday spending is a great place to start, but it’s also advantageous to cut back on spending altogether. But how can you save money during the holidays without skipping out entirely? We’ve got a few ideas:

How to save money on holiday gifts

For many, gift-giving is the most expensive part of the holidays. The expenses can add up, whether it’s a Secret Santa event at work, presents for your children, or a holiday gift exchange with a group of friends. Here’s how you can keep costs down:

• Set spending limits. The easiest way to keep from overspending is to discuss gift limits with friends and family. Talking about finances isn’t always easy, but your loved ones should understand – and they may also appreciate a firm spending limit.

• Go the handmade route. You can save a lot of money with DIY holiday gifts: Knit a sweater, paint a picture, lay out a photo collage, or make a candle. Such gifts from the heart may mean even more to friends and family.

• Give the gift of time. Volunteer to mow your grandparents’ lawn next summer or help a friend clean their attic. If you have a special skill like gardening, car maintenance, or doing taxes, you can offer up your expertise for a loved one in place of a physical gift.

• Bake tasty treats. If you have a lot of people on your nice list, try baking cookies or a seasonal dessert from scratch. You probably have most of the ingredients in your pantry, and baking in large quantities allows you to spread cheer to coworkers, neighbors, and classmates in one go. 

• Use coupons. Coupons aren’t limited to weekly ads in the paper. Apps like Dosh, RetailMeNot, and The Coupons App can help you save digitally.

• Shop on Black Friday and Cyber Monday. Hectic though it may be, Black Friday has steep discounts for willing shoppers. If online shopping is more your thing, you can find great deals a few days later on Cyber Monday.

• Gift shared experiences. Couples and friends who feel compelled to buy each other gifts but want to save money can consider pooling their funds for a shared experience, like a concert or weekend getaway. If you already planned an event, call it your gift for one another to reduce your overall spending.

• Suggest free activities or group volunteering. If shared experiences still drain your budget, consider a free activity everyone can do together, like a board game night or winter hike. Even better, gather friends and family to volunteer for a nonprofit organization; the time spent together can replace the need for physical gifts, and you’ll be helping out those less fortunate.

How to save money on holiday dinners

Gifts are only part of the problem. If you’re serious about reducing your holiday budget, check out our tips for saving money on Thanksgiving and Christmas dinners:

• Host a potluck. Instead of cooking all the food yourself, ask friends and family to join you for a potluck. Everyone brings a dish to share, so you still get a big holiday meal without taking on the cost yourself.

• Try a budget-friendly recipe. Thanksgiving dinners don’t have to be expensive. We’ve assembled 11 affordable holiday menus for six people – each under $50.

• Create new traditions. Who says you have to eat a massive turkey on Thanksgiving? If your family is open to something new, try a cheaper tradition, like a homemade pizza on Thanksgiving, grilled cheese sandwiches on Christmas Eve, and Chinese takeout on Christmas Day.

How to save money on holiday decorations

Short of avoiding Target every November, here’s how to stop spending money on holiday décor:

• Get an artificial tree. Instead of buying a real spruce each December, purchase an artificial tree and reuse it. If you hold onto it for multiple years, you’ll find that your holiday decoration budget has much more wiggle room.

• Use LED lights. LED light bulbs use 90% less electricity than incandescent bulbs⁴ – and last 25 times as long. While you’ll spend more up front on LED Christmas lights, you’ll see the savings on your electric bill each winter.
• Use handmade decorations. No need to buy new ornaments every year. DIY ornaments are more affordable and create an opportunity for lasting family memories if everyone participates.

Reducing your holiday budget for the year ahead can help you avoid overspending, but what if you’re still playing catchup from last year? If you have debt spread across several credit cards and are struggling to break free of the mounting interest, debt consolidation might be a way out.

Not sure how to consolidate your debt? Common strategies include balance transfer credit cards and personal loans.

• Balance transfer credit cards: If you qualify, you can transfer your outstanding debt to a credit card with 0% APR. That 0% APR won’t last forever, but it could give you enough time to pay off the debt without accruing additional interest.
• Personal loans: Another option is a debt consolidation loan, which is a personal loan that lets you roll multiple debt types into one single loan. That means you won’t juggle multiple payment dates, and the APR is usually lower than a high-interest credit card.

Check out other strategies for paying off credit card debt.

Creating and sticking to a holiday budget can keep you from overspending on Thanksgiving dinner, Christmas presents, and everything in between. 

Get creative with your gift-giving, set realistic limits for yourself and loved ones, and consider opening a high-yield savings account to grow your holiday funds all year.