Budget for the Holidays Now So You Don’t Go Into Debt for Them Later

Last year, Americans spent an average of $830 on Christmas—not exactly chump change. With about ten weeks left until the big day, the good news is that there’s still plenty of time to plan ahead. Here’s how to budget ahead of time so you can pay for everything up front and give yourself the greatest gift of all—not having debt hanging over your head as you head into the new year.

One of the key features of a balanced budget system is being able to set aside money for larger expenses that occur less frequently—like holiday expenses. Some other examples are car insurance premiums due twice yearly, a vacation fund that you pull from once or twice a year, or an extra yearly mortgage payment. These accumulating funds are often called “sinking funds.” In my favorite budgeting tool, YNAB, they’re called “true expenses.”

When large payments become due, you should have the cash reserves to pay outright for these expenses so they don’t throw off your regular monthly budget. And when you do, it’s awesome.

With Christmas-related spending pushing a thousand dollars for some families, a holiday sinking fund makes a lot of sense. Not only will you be able to pay for your gifts and other holiday expenses without relying on debt or throwing off your budget, but you’ll also be helping yourself to stick to a spending plan and not lose track of your cash flow…

Ask yourself these questions when setting up your holiday sinking fund…

Many people have several types of holiday expenses: decor, hosting or cooking for holiday meals, teacher gifts, small gifts for neighbors/co-workers, etc., larger gifts for family members, and charitable donations, to name a few. Take a bit of time to think about how much you plan to spend on each of these categories and add them together for your estimated total before you break your total holiday spending up into weekly savings goals.

If you plan to travel to celebrate the holidays with friends and family—whether you’re flying, driving a significant distance, or staying in a hotel for a few nights—be sure to factor in these expenses in addition to the typical spending amounts for gifts and the like. Don’t forget to include restaurant expenses, travel-related necessities you might need to buy, such as heavier winter coats or snow boots for your traveled-to location, and entertainment in your estimates.

In thinking about how much total you’ll probably spend on the holidays, consider how your particular situation differs from average. If you have a large family, for instance, you’ll either have to spend less on each person or up your total budgeted amount. Maybe you can consider an “experience” gift for the whole family rather than several material ones. If you’re an international student who doesn’t celebrate Christmas, your only expense might be a plane ticket to visit home.

Now that there are fewer than a couple months to save up, it’s best to split your total planned expenditure into savings per week. This will help you cut back on extraneous expenses leading up to the year’s end. You might think twice about going out that second night this week, for instance. Once you know what you need to save each week from now until the holidays, stash it away someplace that’s safe, but liquid. When it’s time to pay for flights and gifts, you want your Christmas cash handy.

No matter your situation, thinking ahead in a detailed and personalized way about your upcoming holiday expenses will take a lot of stress out of the holidays. Cheers to that!