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Top holiday budgeting tips for families

Key takeaways:

- The average American spends about 1% of their annual income on holiday gifts.

- Your holiday budget should ultimately depend on your financial well-being: Ask yourself if you can afford to spend $X amount of money on gifts without going into debt or draining your bank account.

- Create a budget by writing down lists of your gift recipients, gift ideas, gift prices, and total amount before you shop. This will help you understand how much you’re spending before hitting your local holiday shops.

Candy canes and season’s greetings. Santa hats and Christmas trees. Menorah lightings and dreidel games. The oh-so-exciting holiday season is here.

For those that have worked hard to save up for holiday gifts, the time is finally here! And for those that haven’t saved for gifts, it’s not too late to make a plan. But why is a plan necessary?

In 2021, more than a third of consumers (36%) went into holiday debt to pay for gifts, travel, and entertainment. How much debt, exactly? An average of $1,249. Yikes.

So whether you’re a budgeting newbie or a money pro, setting a budget for the holidays can help you enjoy the holiday cheer without overspending.

How much should I budget for the holidays?

Some advisors recommend spending no more than 1% of their annual income on holiday gifts. So let’s do the math. Say you earn $50,000 per year. Your budget should be around $500 (or 1%).

However, if that number seems out of reach, you can always adjust it to your financial situation. For example, if you have to take on credit card debt or drain your savings to do your holiday shopping, consider lowering your number.

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

If your number seems too low for your plans, ask yourself if spending more will negatively affect your financial well-being. Consider crafting a gift – handmade items are often cherished by family and friends. If you can afford to spend more or have saved money for the holidays — you’re in the clear. Just remember to stick to your budget and track your spending.

How to set a holiday budget for gifts

When it comes to creating a budget for the holidays, a little bit of planning goes a long way. Follow these simple steps, and you’ll be a pro holiday budgeter in no time!

Step 1: Create an organized gift list for your holiday shopping

A list will keep you focused, both in-store and online. In one column, write down who you plan to buy holiday gifts for. Remember to include any family members, friends, and coworkers. Your list could look something like the following:

  • Your partner or significant other

  • Your kids and teens

  • Your parents

  • Your siblings

  • Your (kids’) teachers and babysitters 

  • Service people (Think: Mailman, housekeeper, maintenance staff)

  • Neighbors

  • A charity or religious institution

If the funds are tight this year, consider tightening your list to those that are most important to you. Next to their names, write down gift ideas for them. If you feel comfortable, ask them for a wish list. Want to surprise them? Brainstorm gift ideas or consider asking friends and family.

This list doesn’t have to be accurate — but having a general gift list will help you estimate costs before you shop. 

Done? Way to go! Before pulling your wallet out, it’s important to do your research and compare prices online.

Step 2: Research gift prices online

Now that you know who and what you’re gifting — you’re ready to start researching gift prices. For example, if your sibling wants a new phone case, look at different websites for the best price. Once you find the case you might want to buy, add the link and total price to your list.

Keep track of how much each gift will cost you. After adding prices, your list could look like this: 

  • Dad - Sunglasses - $12 + Link

  • Mom - Red scarf - $15 + Link

  • Brother - Camera - $50 + Link

  • Sister - Yellow phone case - $20 + Link

  • Teacher - Gift card - $10 + Link

  • Cousin - Makeup - $16 + Link

  • Neighbor - Coffee mug - $5 + Link

  • Friend - Orchestra tickets – $50 + Link

    • Total Cost: $178

Greenlight tip: Now that you have an estimate of how much you’ll be spending on gifts — set a Savings Goal in your Greenlight app for the holidays. Head to your app and name your goal Holiday Funds 💸 or 🎁 Gift Goals

Step 3: List your other holiday expenses

Most people forget about the other expenses this time of year related to the holidays. Not here! List any other holiday expenses you can think of, such as:

  • Holiday cards

  • Decorations

  • Clothing for parties and events

  • Wrapping paper

  • Host gifts for holiday parties

  • Holiday travel

  • Charitable giving

  • Gift exchanges

  • Cooking and baking holiday meals & treats

If you already have some of these things from last year — way to save! If you don’t, add an estimate of the price next to each item. (Don’t forget to add this number to your Savings Goal if you’re using the Greenlight app!)

Step 4: Analyze your finances — what’s your available money to spend? 

Now that you have your shopping lists — it’s time to analyze your finances. Have you saved enough money throughout the year to afford your holiday shopping? Nice. You’re ready to move to step 5.

Teen girl looking at Greenlight app while shopping for the holidays to keep track of budget

Are you counting on an end-of-year bonus? Will you take a chunk from your savings? Whatever your plan is, make sure you’re not going into debt or leaving your savings at zero. And if you are — it’s time to reconsider gifts for another budget-friendly alternative. 

Step 5: Check your list twice — review your holiday budget again

Halfway point! You should now have a gift list with prices, a total estimate of what you’re going to spend, and a source of income for your gifts. 

Before spending any money, review what you’ve come up with so far. Take a look at your final number and ask yourself if you’re okay with spending X amount of money. If you are, you can skip to step 7. But if you aren’t — it’s time to adjust your budget to a number that works for you.

Step 6: Adjust your budget to fit your spending limit — if needed

Remember, you don’t want to cause any long-term financial damage. That means avoid debt if possible, and spend within your means.

If you can’t afford to give gifts this year, think of creative ways to swap gifts with free experiences, hand-crafted items, or start holiday traditions that your family and friends will remember forever.

Step 7: Track your holiday spending

Now that you’ve successfully created your holiday budget — you’re ready to shop. Keep your budget handy to make sure you’re not overspending.

Mom and dad with daughter in shopping mall

Revisit the links in your list for a quick and easy shopping experience. After each purchase, record the amount spent on your list and keep a running total to track your overall spending.

Save more with holiday sales and budgeting apps

If you want to save even more — keep these dates in mind when planning your holiday shopping: Black Friday and Cyber Monday. Stores typically have one-day or week-long sales with major discounts. 

You made it to the end. Nice! If you’re already using your Greenlight money account to budget and create Saving Goals for the holidays — you’re on the right track. Interested in getting Greenlight for your kids and teens this holiday season? Get one month, on us.

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