5 Holiday Spending Tips to Bank Smarter This Season

Bah humbug, we know. But setting a “seasonal spending plan” upfront (aka “budget,” but more festive sounding) will help you avoid a post-holiday money headache. 

How much should you spend on holiday gifts? One common guideline is to keep your total gift spend to 2% or less of your annual income IF – and this is a very important “if” – that amount fits in your budget. 

For example, if you make $50,000 a year, your gift budget would be $2,000. Pulling in $30,000 annually would translate to $600 for spreading joy and cheer. (Want to plan ahead for next year? Our handy savings goal calculator shows you how much to set aside per month, week and each day so you have an adequate cash stash on hand when the spendy season rolls around.)  

That said, your generosity shouldn’t come at the expense of other financial priorities. “The best budget is one that fits your overall holiday spending plan without causing too much stress,” says popular YouTube financial influencer and former financial advisor Humphrey Yang. “The best gifts don’t have to be expensive. You want to focus on thoughtful, affordable choices that also won’t hurt your finances.”

Phase two of your seasonal spending plan is calculating your per-person gift budget. 

Start by adding up the number of people on your gift list – friends, family, pets, secret crush. Don’t forget to include folks outside of your main circle (e.g., office BFF, in-laws, your dog’s best fur friend) if you plan to give them a little some’em- some’em for the holidays. 

For a rough first cut, simply divide the total dollar amount you’ve earmarked for gifts by the number of people (and pets!) on your list. So if your budget is $900 and there are seven near and dear ones to buy for, you have roughly $130 to spend per person.

No doubt your favorite manicurist would be thrilled if you handed her a C-note as a token of appreciation. In reality, most people spend more on gifts for their immediate family and close friends and a little less on coworkers or acquaintances.

The right amount to spend per person comes down to personal preference, says Yang. But if guidelines will help you frame your approach, he cites a common range between $25 to $100 per person, depending on your relationship and budget. 

Another tip to minimize yuletide angst: Set aside some money to cover unexpected costs – you know, the “surprises” that inevitably pop up during the holidays, like having to panic-shop for someone you accidentally left off your gift list (or how wrapping paper can add up).

Truth is, not everyone is feeling exactly flush with extra cash these days. Maybe you’re trying to pay off credit card debt or are working hard to grow your savings. Or perhaps “doom spending” has left you with less money for holiday expenses. 

There’s a good chance that others in your circle are in a similar situation. One way to dramatically whittle down everyone’s holiday costs is with a group gift exchange (a la “Secret Santa”). “Secret Santa lets people focus on one thoughtful gift instead of buying too many smaller gifts,” Yang says.

For large families or friend groups, a group gift exchange is a brilliant way to celebrate the holidays together without breaking the bank. 

Different versions of white elephant gift exchange rules include being assigned a specific giftee and spending limit, drawing names randomly, themed gifts and gamifying the exchange to allow swaps and steals. 

Whatever approach you land on, the result is the same: Everyone walks away with fond memories, a healthier bank account and a memento to mark the occasion.

When everything seems to be on sale, how can you spot the difference between a real deal and a raw deal? 

Yang’s approach is to keep a running price list of items he might want to buy throughout the year. Then as Black Friday and Cyber Monday approach, he’s able to judge whether something’s a true bargain or just a run-of-the-mill discount.

In his experience, “special holiday sale prices” on certain products – such as clothes, toys, or small gifts – are often similar or even less generous than discounts retailers offer during other times of the year. You’re more likely to find deep discounts during the holidays on big-ticket items like electronics, appliances and gadgets, he says.

You’ve put careful thought into deciding how much to spend on the holidays. Equally important is deciding the best way to pay for those purchases. 

Your payment method is not just a transactional detail – it can be an important component of your overall holiday spending strategy, especially if you’re trying to pay off existing credit card debt, working on building your credit, or bolstering your emergency fund. 

As you approach the checkout counter (IRL or virtually), consider the pros and cons of different payment methods and how they apply to your financial situation: 

• Credit card: Ideal if you can pay off holiday balances completely by the due date. Provides an interest-free loan, purchase protections, and maybe even spending rewards. The downside: High interest rates on any balances you let linger on the card drive up the total price you end up paying and quickly cancel out any rewards you earn. Yang points out, “If you’re carrying a balance because of holiday shopping, the interest can wipe out any holiday cheer rather quickly.”
• Debit card/cash: Best if you’ll be tempted to over-spend using a credit card. Debit cards/cash, by design, ensure you stick to your budget since you can only spend whatever’s in your bank account or wallet. Plus, it enables you to avoid adding debt to a credit card with an existing balance. The downside: Lacks purchase protections that come standard with credit cards. 
• Buy now, pay later (BNPL) services: An option if you want to stretch out your payments. The BNPL pitch – pay for a purchase over time via an interest-free installment loan – is solid for those disciplined enough to set aside money to settle their tab on time. The downside: They can make big-ticket, budget-busting items seem within reach. And the fees and interest rates for any late or missed payments can harm not only your budget, but your credit score.
• A secured credit card: A hybrid card with built-in spending limits and extra perks.  When you cross a debit card with a 0% interest rate credit card, you get a secured credit card — a payment option that provides the best of both worlds. Like a debit card, you don’t pay any interest on your purchases because you’re not borrowing money: Your line of credit is your own money, drawn from the amount you use to fund the card. Like a credit card, it’s widely accepted and includes purchase protections. Some secured cards even help you build a credit history and offer the option to earn cash-back rewards on your spending.

Choosing your method of payment wisely can shift your holiday narrative from worrying about a bill you can’t cover to enjoying a fully financed celebration.

This year, make the holidays all about celebrating, not stressing about how you’re going to pay for all the merriment. Planning ahead, setting spending parameters and picking the best way to pay for purchases will help you ring in the new year financially fit.