How to create a holiday budget

The shift from pumpkin-spiced everything to peppermint and snowflakes serves as a reminder that the winter holidays are on their way. While this time of year often brings joy and glad tidings, it can also place a dent in your household budget. Taking a step-by-step approach to holiday budgeting can give you a sense of control over your spending and allow you to shop with confidence.

Step 1: Review last year's expenses

Looking back at past holiday spending can help you set expectations for the upcoming season. Even if you don't have the information for every gift purchase at your fingertips, reviewing your credit card receipts or bank statements can identify how much your spending increased during the last months of the year.

Credit card statements also supply valuable information about where and when you purchased holiday items. Once you understand how you spent your money, think about what you might want to change this year. For example, if you moved into a new home or apartment, you might want to spend more of your holiday budget on decor.

Step 2: Plan your total spend

Setting a spending goal and using lists to track gifts and other holiday purchases can help avoid impulse buying. If you're strolling the mall and find a great gift that exceeds your preset limit, take the time to question your decision. How much will the added purchase affect your overall spending? Can you shift funds from another spending category?

If your total spend exceeds last year's budget, consider how you'll handle the increase. Did your household income increase as well? Will you need to spread out your holiday payments into January? If so, do you have the flexibility of a credit card that lets you pay over time?

Tip: Track your spending as you go to help you prepare next year's holiday budget. Create a spreadsheet, or use tools like Citizens Savings Tracker™¹ to stay organized and on track. Don't forget online purchases! Add a label or folder in your email to save digital receipts.

Step 3: Outline your spending plan by category

Generally, the umbrella of holiday spending covers several categories. Amounts can shift between these categories from year to year if your holiday celebrations change or you develop new family traditions.

Gifts

The holidays are a season for giving and bringing joy to others. While we all wish for an unlimited spending budget, it's wise to set monetary limits on gift-giving. Think about what each person on your list would truly enjoy, whether it's a physical gift, an experience or a gift card. Base your gift budget on what you've spent in past years, but with inflation rising, you might need to think creatively or spend more time hunting for sales or markdowns.

Travel

A holiday travel budget may vary widely between households. If you live far from friends and family, you might have costs such as airfare, hotels, or gas and tolls. To save time and money on travel, remain flexible and try to avoid flying or driving on peak dates. The holidays may also be a good time to cash in rewards points or take advantage of loyalty discounts. If you choose to stay with friends or family to cut hotel and dining costs, pack an extra present or offer to pay for a meal for your hosts to show your appreciation.

Decor

Before you go overboard and string together the neighborhood's most spectacular light show, consider the costs of holiday decor. (You'll also need to find a place to store your holiday decorations for the better part of the year.) Before you blow your budget, and possibly a couple of circuits, think about how much you need to achieve a holiday look. Understated decor may be enough to create a beautiful and welcoming holiday look for your home.

Parties

If you're known for an annual trim-the-tree party or a New Year's Eve bash, remember to include the costs in your holiday budget. Consider the size of your party and what type of food and drinks you plan to serve. Search online for local caterers offering holiday menus to price out food and drink costs. If this is your first year hosting, you may want to start with a smaller guest list and aim for a casual gathering with appetizers, drinks and a fun holiday playlist in the background.

Step 4: Find deals to maximize your allotted spending

As your holiday shopping list grows, you may need to find ways to stretch your budget. For larger gift purchases, such as the gaming console or bike on your little one's Christmas list, research the best price before you buy. Take advantage of Black Friday, Small Business Saturday or Cyber Monday sales by freeing up time to shop. If you find a great sale price and need to buy quickly, consider the available payment options.

Tip: Many retailers now offer Black Friday and Cyber Monday pricing over several days or more. If you can't make it to the store on a specific day, check for extended sales or look online for similar pricing. You can also find more ways to save by shopping early for holiday gifts.

Step 5: Be prepared for the unexpected

Holiday season surprises can arrive at any time, so leave some money in your budget for the unexpected. If your child asks for a special Hanukkah present after you've purchased their gifts, you may need to make a last-minute trip to the mall or pay for express shipping. Stocking up on a few extra gifts for new coworkers or party hosts can help alleviate the stress in situations where you're unsure of gifting traditions. Using the Citizens Pay app or a credit card offers added flexibility when you need to add one more item to your list.

Step 6: Save early and often

Rather than wait until after the leaves have fallen to think about your holiday spending, commit to saving for the holidays earlier next year. Break down your holiday budget into manageable amounts that you can stash away each month. Make saving easier by setting up an automatic deposit to divert a portion of each paycheck into your bank account. You might also want to consider adding money into a sinking fund, which is a savings accounts marked for a specific purpose, such as holiday spending.

Wrap up your holidays with less stress

Holiday budgeting allows you to set priorities and consider how much you want to spend on different holiday-related categories. Keep in mind your financial and personal goals as you develop this budget. After all, the holidays are about celebrating and spending time with those you love. While gifts, food and decor are part of the equation, think about what you remember most from years past — even simple pleasures like hot chocolate by the fire or a low-key gathering with friends can create lasting memories.

Ready to tackle your financial goals?

Wherever you are in your financial journey, Citizens is here to help — with banking that stands with you and grows with you. With automatic transfers from your checking to your savings account, you can set money aside and watch your savings grow. Get a jump on your financial path by exploring our savings solutions today.