How to Budget for Christmas: 6 Ways to Spend Less (+ enjoy stress-free holidays)

I LOVE the holidays. Time with family, gathering around a fire, cozying in and playing games while it snows outside…it's a magical time of year, but it can also be hella stressful, especially if you don't know how to budget for Christmas.

The presents, the parties, traveling to see family…expenses grow faster than Frosty rolling downhill in a snowstorm.

Every year, I spend more in December than any other month, and I know I'm not the only one. Last year, Americans spent almost $790 billion shopping during the holidays. And this year, they're expected to spend as much as $860 billion. That's insane!!

It's one thing if you've saved up, but it's another when your holiday shopping budget gets added to your ever-growing pile of debt.

So, today we're going to talk about how to budget for Christmas so you can get back to drinking eggnog or watching Love Actually on repeat without the heavy weight of financial stress.

How to Budget for Christmas

At Dow Janes, we teach what's called a 50/30/20 budget. What that means is that you divide your monthly income into three categories: needs, wants, and savings.

Each month, you spend no more than 50% of your income to spend on needs, things like housing, food, transportation — anything you need to stay alive, stay safe, or stay employed. Then you have 30% to spend on wants, aka things that you actually want, like a day at the spa or going out to dinner. After that, you should be saving 20% of your income each month.

how to budget for Christmas - 50/30/20 budget

So, where do gifts fit in?

Well, since you don't need them to stay employed, safe, or alive (despite what your children might say) that means your entire holiday budget should fit into your wants category.

Let's run an example. If you take home $5,000 a month after taxes, that means you have $1,500 to spend on wants. Don't forget that includes all of your other wants. So, if you're buying clothes for yourself, getting your hair cut, or going to a movie, that gets added into the $1,500 bucket as well.

Trust me, those things add up fast, so if you need more than your 30% allotment for the month, start to save a bit extra in the months leading up to the holidays. You can even create something like a holiday fund that you can contribute to throughout the year.

But if you haven't done that, try not to dip into your savings. Instead, stick to your 30% of your monthly income. Remember, the best present you can give yourself and your loved ones is financial security.

Step 1: Figure Out Your Monthly Income

The first step to set a budget for Christmas is to figure out your monthly income, the total money that comes into your household after taxes each month. This includes your wages and any side income you have.

Step 2: Calculate Your “Wants” Budget

Take your total monthly income and multiply it by 30%. That's how much you have to spend on wants for the month.

And remember — that's for the whole month, so if you anticipate needing a higher holiday budget, you might have to cut back on your personal wants this month. Maybe reschedule your haircut or host a game night at your house instead of going out.

Step 3: Estimate Your Expenses

Make a category for presents and list out every person you're buying a present for. You can even assign a dollar amount to each person, so you have a limit for how much you're going to spend.

Then make another category for events and activities, like a concert or a sleigh ride, and include the cost of those things in the column next to it.

Step 4: Make Sure Your Expenses Fit In Your Budget

After that, you're going to total up all of those expenses — the presents, the events, and the activities — and make sure that your 30% bucket minus these expenses is a positive number or a zero.

If it's a negative number, you're going to have to make some adjustments. It means you're planning to spend more than you actually have in your holiday budget. You can either eliminate some of those expenses or figure out ways to earn extra income this month.

Step 5: Track Your Expenses

The last step in creating a budget is tracking your expenses as you shop. This is a really important step to make sure you don't go over budget. After all, anyone who's tried budgeting knows that it's one thing to create a budget and it's another to stick to it…am I right?

how to budget for Christmas

How to Buy Christmas Gifts on a Budget

Ok, now that you know how to budget for Christmas, let's talk about six ways to spend less so you can actually stick to your budget.

Tip #1: Spend Less on Presents

I'll be the first to admit, I tend to spend the most on presents during the holidays, probably because I put off shopping until the last minute and then I feel pressured to spend more, to make up for the lack of forethought.

If you struggle here too, here are three ideas to help you (and me!!) spend less on presents this year.

Idea #1: Give Experiences Instead of Presents

So…what do I mean by that?

Basically, the idea is that instead of buying a physical product, you invest time into creating a shared experience that you and your loved one can cherish for years to come.

This could be something like…

  • A mother/son camping trip
  • Exploring a new city with your significant other
  • Giving your mom a lavish spa day for your mom, complete with a foot bath, rubbing her shoulders, painting her nails…

Gift Idea #2: Make Things Instead of Buying Them

Hypothetical scenario: you get invited to a white elephant gift exchange. Instead of buying something for $50, what if you did a DIY Christmas gift, like clay earrings or a scented candle? Or you could make your grandma's famous chocolate chip cookies and bring those in a fancy tin.

Gift Idea #3: Do a Secret Santa

If you're going home for the holidays, with all 17 of your aunts, uncles, and cousins, instead of having to get something for everyone, what if you proposed a Secret Santa?

This is what we do in my family. We all pick names out of a hat, set a Christmas gift budget, and then we go to town together the day before Christmas to find something for our Secret Santa.

I love this tradition because it takes the pressure off of finding something perfect and from buying something for everyone.

Now, if you have kids, it might feel hard to spend less on presents, but the earlier you can set the expectation that the holidays aren't about gifts and instead are about quality time with family, the better for their holiday experience and the better for your budget.

(If it helps, you can always blame it on Santa and tell your kids he doesn't have a lot of room in his sleigh this year.)

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Tip #2: Make a List Before You Shop

If you're going to brave the Christmas shopping rush, it really helps to write down ahead of time what you're going to get for each person and how much you're going to spend.

That helps me personally, because I'm always tempted to splurge on a few things for myself when I'm out Christmas shopping. There's just something about the holidays and feeling like I deserve it, and I buy things that I would never otherwise buy for myself, just because the spirit of the holidays.

So, if you're like me and you do the same, do yourself a favor and make a plan before you start pushing that shopping cart.

Tip #3: Pay with Cash

Studies show that handing over cash is more psychologically painful than swiping a credit card. Plus, it makes it more difficult to go over your budget if you only give yourself the amount of cash that you have to spend.

Tip #4: Use Last Year's Gift Cards

If you got gift cards for Christmas, or you have credit card reward points, you can use those either supplement your holiday budget or to make it easier to stay within your holiday budget.

Tip #5: Consider Skipping or Reducing Expensive Christmas Traditions

If you do a fancy photoshoot with your family every year and send out cards, come up with some creative alternatives, like setting up a tripod in the front yard and sending out an email Christmas card. (I mean, why not give a little gift to the environment too?)

Tip #6: Start Free (or Less Expensive) Christmas Traditions

There are plenty of fun holiday activities that require little to no money. One of my favorites is punching star shapes out of cookie dough, globbing frosting on (how do The Great British Bake-Off contestants make decorating look so easy?), eating waayyy too many before dinner…

In my family, we also pay $6 for a Christmas tree permit and go cut down our own tree. Every year, we trudge out into the snow to hunt for the tree with the perfect fullness, drag it back to the car, and hang our red and gold ornaments while drinking eggnog. Of course, you probably can't do that if you live in a city, but if you live somewhere with trees, give it a try.

Other cheap, fun ideas for holiday traditions:

  • Make popcorn and watch It's a Wonderful Life
  • Go caroling drive through different neighborhoods looking at Christmas lights
  • Bring out the board games and puzzles

I hope that you enjoy the holidays this season and not feel guilty or financially strained. So, set a Christmas budget and follow these six tips to make the holidays feel like the season of joy that they are — spending time with family, eating delicious sugary food, and spreading peace and love to all.

If you've realized that you need to get your financial situation in check to actually enjoy the holidays next year, be sure to check out our free masterclass about taking control of your finances so you can enjoy your life. Think of it as my present to you. Happy holidays!

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