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Greenlight app on mobile screen with personalized holiday themed debit card against green background

Dec 21, 2022

6 easy steps to making a holiday budget you can stick to

The holidays bring about cheer, family, food, and fun, but one thing they shouldn’t do is add to your debt. Did you know? 36% of American families take on holiday debt, with an average of $1,249 per family. Woah.

The good news is that it doesn’t have to happen. All you need to do is create and stick to a holiday budget. With a firm plan in place and a bit of discipline, you can emerge from the holiday season debt-free. 

Holiday checklist graphic with yellow background from Greenlight money app for kids

In this blog, we’ll cover how you can create a budget you can manage in just six easy steps — to help make all your holiday wishes come true.

How is a holiday budget different from a regular budget?

A budget is a personal finance tool for how you spend and save your money. If you’ve had a budget before, many of the same principles carry over as you create your holiday budget. 

Take all of your income, subtract living expenses — also known as necessities like food, shelter, clothing (within reason), and transportation — add in what you want to save, and voila! You’ve made a budget. Whatever’s left over is for discretionary spending or entertainment.

For example, let’s say you make $2,000 a month after taxes. Your monthly living expenses are $1,000, and you want to save 20% of your income, or $400. That leaves $600 left over for whatever you want.

The holiday budget difference

A holiday budget is like a small version of a regular budget. It prevents overspending while still covering your gifts and other holiday expenses.

Mom and dad with daughter in shopping mall getting gifts for the holidays while staying on a budget

The main difference between a holiday budget and a regular budget is that you categorize your leftover income into specific savings accounts or funds. So instead of a single savings account, you have multiple accounts with titles such as holiday gift-giving, holiday decor, and charity. You’re welcome to disperse funds among these accounts as you see fit.

It’s essentially the same idea as saving for a large purchase or a vacation, but with a holiday-centric focus.

However, you should note that you don’t have to start a holiday budget after the summer ends. A head-start on your holiday budget right after the new year gives you a jump-start on your savings and may allow you to reach your goals early for a little less stress during the holidays.

How to create a budget for your holiday spending in 6 easy steps

Now that you understand the basics of a holiday budget, the next step is to implement your plan. The main focus is to live within your means. Remove the overly expensive items from your gift list and replace them with something more frugal or sentimental. In many cases, the gift recipient will cherish the thoughtful gesture.

Once you balance frugality with feasibility, you’re ready to rock (around the Christmas tree)! Just follow these steps.

1. Start saving early

The holidays begin earlier and earlier each year, or at least that’s what retailers would have you believe. With Christmas and Hannukah decor on display and songs piped in starting in October, you may wonder what happened to Halloween!

With that nudge from retailers, you can start saving earlier each year than you did last year. Ideally, you would begin in January and see how much money you can sock away per month. Because you have 12 months to save, you don’t have to put a ton of money aside like you would if you began saving in October. This is the best way to stay on track with holiday savings while setting aside money for other things.

Another bonus of starting your holiday budget early is that you can take advantage of interest rates. When you put money into holiday savings accounts — also known as Christmas club accounts — some financial institutions may pay you interest over the year. Whatever extra money you make, you can put it towards debt, invest it, spend it on something else or just carry it over to next year’s holiday budget.

2. Create holiday spending categories

Every family’s holiday traditions are different. Some families have a simple, bare-bones holiday gathering, while others go all out. How your family spends the holidays will drastically impact your categories. For the sake of ease, consider a few of these options:

  • Holiday travel

  • Holiday parties

  • Decor

  • Gifts for loved ones and family members

  • Gifts for others, such as your piano tuner, kid’s guitar teacher, or the mailman, mostly in the form of cash or gift cards

  • Food and drink

  • Holiday-themed clothing

  • Charitable donations

You could have one or many spending categories. The idea is to cover everything you may want to spend on — at least at first. During the course of the year, you can always eliminate a category and shovel the funds into another facet of your holiday budget.

3. Create a savings percentage for each category

The next step of your holiday budget is to decide how much money to funnel into each category. If you’ve been a savvy saver in the past, this is probably money management 101. But if you’re fresh to the budget scene, it’s a bit tougher.

An easy way to find out how much you need to save is to check your bank account or credit card statement from last year. Add up all of your holiday expenses to get the total amount you need to save. Then, go back and categorize each of these expenditures. This should give you a percentage of money to save for each category. If you anticipate that your income will remain the same or you just want a number instead of a percentage, you can also go that route.

In case you’re wondering, the average U.S. family spends right around $1000 on holiday expenditures, according to the National Retail Federation. This includes $139 on non-gift purchases, $224 on food and decor, and $641 on gifts.

So if you’re trying to set amounts for categories, about 65% for gifts, 20% for food and decor, and 15% for other things are about right. You can also use the Greenlight® app for your holiday budget and create your savings-goal categories right in the app!

4. Decide how to save your money

Another consideration for your holiday budget is how you plan to save. You can put the same amount of money in your savings account each month or create a cascading cost system, also known as a sinking fund. The cascading system means you save the same amount, but you start with a large amount at the beginning of the year and gradually make your contributions smaller.

If you choose this method, just do a quick online search for sinking fund calculators, and you should find the process quick and painless.

5. Cut costs to stick to your budget

If you have trouble with your holiday budget, cost-cutting measures are always on the table. Unexpected events or expenses can come up without warnings, such as the loss of a job, car repairs, or natural disasters. But don’t feel stressed, you have options:

  • Throw a potluck dinner instead of a holiday dinner you pay for.

  • Shop for gifts at stores to skip out on the shipping costs of shopping online.

  • Reduce your shopping list.

  • Have a gift exchange or a White Elephant party.

  • Make some DIY gifts for certain people on your gift list.

  • Keep track of discretionary or entertainment expenses and reduce them as necessary.

The idea isn’t how you cut your expenses; it’s that you make a vested effort to do so to meet your goals.

6. Stick to your spending limit

The final step of a proper holiday budget is to stick to your spending limit. Even if Junior wants an expensive new gizmo or toy, hold your ground in terms of spending.

If it becomes increasingly difficult to avoid the temptation to overspend, you could deduct that amount from another area of your budget. But remember why it's important to spend only what you've planned and to avoid debt. 

In the end, try looking for sales or comparable, less-expensive products or simply make another selection. After all, it’s the memories and special moments that will last the longest!

Two parents with daughter outside looking at mobile phone Greenlight app during the holiday winter

Bring cheer to your holiday season with some extra help from Greenlight

Before you hit the Black Friday sales and get your holiday shopping out of the way, you need to have a plan. That’s where Greenlight can help. With a helpful blog, financial literacy tools, and ideas to help you save and budget, Greenlight has everything you need to succeed — all in one place.

If your kids want to buy presents or lend a helping hand, the Greenlight app even has Savings Goals that can help them stay on track.

While a holiday budget may not feel like something that will bring you joy, you might just find a bit of cheer when you look at your bank account, and credit card statements come January. So bust out the holiday cheer and enjoy the season. You earned it.

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