Our Step-by-Step Guide to Making a Holiday Budget

Overspending to make the holidays special can lead to major post-holiday regrets.

Retail experts predict the average consumer will spend $832.84 on gifts, food, decor and more in 2022,  according to the National Retail Federation’s annual survey on holiday spending. Is an extra thousand dollars in your holiday budget?

As you start your holiday shopping, it’s essential to figure out how much money you can spend before figuring out what you want to spend your money on. That means creating a specific holiday budget.

If you set aside an hour to review your numbers and create a holiday budget, you’ll be able to sustain that holiday cheer (and have a little more cash) long into the new year.

How to Make a Holiday Budget

Feel free to create your holiday budget using your preferred method, whether it’s an Excel or Google Sheets spreadsheet, pen-and-paper budget or budgeting app.

Whichever you choose, having the info at your fingertips will help you stick to your holiday spending limit and prevent impulse buying.

1. Analyze Your Current Debt

It may not be pleasant, but it’s necessary: Before you do anything else, take a good look at your debt — specifically, your credit card debt.

If you have more on your credit cards than you can pay off this month, we urge you to reconsider participating in the holiday shopping frenzy. A much better use of your hard-earned money would be to pay down your credit card balance.

We have plenty of methods to help you start paying off debt, including a snowflake, snowball or avalanche approach.

Skipping expensive holiday gifts doesn’t mean you can’t shower your friends and family with love. You can make gifts by hand (here are some affordable gift ideas), or give them service coupons for favors — like cleaning their house or making them dinner.

After all, a gift from the heart often means more than something that will be out of style next year.

2. Project Your Total Holiday Income

Credit cards in the clear? Time to estimate the total amount you’re going to earn over the holiday season.

If you get the same paycheck every two weeks, this will be easy — double your paycheck for your monthly income.

Pro Tip

Think outside the paycheck for your holiday savings stash: Do you have old gift cards you can use to purchase gifts (or give as gifts)?

Think outside the paycheck for your holiday savings stash: Do you have old gift cards you can use to purchase gifts (or give as gifts)?

If your pay is irregular, figuring your income will take a little more effort. One option is to look at your pay stubs or bank accounts from this time last year. (Check out this guide to budgeting if your income changes from month to month.)

If your job — or pay — has changed since last year, you can average the amount you earned over the last three months. (If you have a particularly high month, throw it out; it’s better to err on the lower side.)

Remember to also include money from side gigs and seasonal jobs.

3. Make a List of Expenses

Once you know how much you’ll earn during the holiday season, it’s time to calculate your holiday expenses.

Before determining how much to allot for holiday expenses, review your monthly budget to determine what extra money you have — or expenses you can cut — to accommodate the extra spending.

If you don’t already have a monthly budget, stop what you’re doing and read these tips for how to make a budget that actually works.

Subtract your regular expenses — like rent or your mortgage, utility bills, groceries and gas — from your projected income to figure out how much money you have in your budget for the holidays.

Also, check your calendar: If the deadline for annual payments like car registration or HOA fees fall within the holiday season, be sure to include them in your expenses.

4. Assign Categories for Holiday Spending

Now it’s time to figure out how to get your holiday expenses to fit within your holiday budget.

Start by estimating your expected holiday expenses by spending category, excluding gifts. Some expense that might be on your list:

  • Travel.
  • Holiday decorations.
  • Wrapping paper and other supplies.
  • Holiday meals.
  • Holiday parties.
  • Holiday clothes.
  • Holiday cards.
  • Donations.
  • Professional holiday photos.

After you figure out these expenses, subtract this amount from your holiday budget. Now you have your holiday shopping budget.

Is the amount smaller than you might like? Consider making cuts from other categories if gift-giving is your priority.

5. Create a Shopping List

All right, Santa, who’s on your list?

It would be easy to overspend if you stopped at compiling the things you want to buy. Instead, create a holiday budgeting worksheet with the following info:

  • Name
  • Budgeted amount
  • Gift idea
  • Where to purchase
  • Sales, coupons and rebates (and deadlines or expiration dates)
  • Shipping costs

Keeping your list within your budget may require a little give-and-take. If you have your heart set on buying mom that $300 mixer but you only have $500 total to spend, can you come up with inexpensive gifts for the remainder of your list?

6. Start Tracking Prices

One of the keys to smart holiday shopping is patience. Well, patience and research.

Before making any purchases, check prices at multiple stores. Price-tracking and price-comparison tools abound.

BuyHatke is a useful browser extension that compares and keeps track of current prices. When you shop on Amazon, it also displays price-history graphs, so you can see if the current price is really a bargain. Or try the SlickDeals app, which alerts you when prices drop in certain categories or at your favorite stores.

Or try money-saving Chrome extensions that do that work for you — we have 11 that can help you save money.

7. Stick to It!

This step may be last, but it’s one of the most important (and definitely the hardest to follow).

Sticking to your holiday budget is the only way to avoid a holiday hangover — at least financially. It’ll take some willpower, but it’s worth it.

To help, create a holiday expense category with an all-in-one tool like Mint (check out our Mint review).

Pro Tip

Want to put an end to the endless (and pricy) pile of presents? Try creating a new holiday tradition: the four-gift rule.

Want to put an end to the endless (and pricey) pile of presents? Try creating a new holiday tradition: the four-gift rule.

If you prefer something more tactile, withdraw your holiday shopping budget in cash and keep it in a jar.

If you buy anything online or with a credit card, take that amount out of the jar and put it into a separate envelope, which you can later re-deposit into your checking account. Once that jar’s empty, so is your holiday budget.

Susan Shain is a contributing writer to The Penny Hoarder.  Ken McDill contributed to this report. 

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