Smart Holiday Savings: Plan & Budget for a Stress-Free Christmas

Autumn is here and the leaves are just starting to turn. Believe it or not, that means it’s time to start thinking about the holiday season. Holiday expenses can pile up quickly. Planning ahead saves you sticker shock and can spare you a steep credit card bill in the new year.

Careful planners have laid out their holiday budget well in advance and saved for it all year long. It’s not like the holiday season is a surprise, after all! A generation ago, it was common for housewives to be part of a “Christmas club” at their local bank, which was just a targeted savings account where you saved a little cash each week and got it back in a lump sum before the holidays.

But what if you haven’t laid aside a nice nest egg for holiday shopping, travel and entertaining? Well, it’s never too late to start. Getting on the holiday savings bandwagon now will help you create a buffer between you and all those extra bills.

How can you do it?

Begin with a budget

Start with a budget of expected expenses. You probably know at least roughly what you spend year to year. If you’ve been tracking your spending, you can even look back at the past few Decembers and get a more detailed feel for what your expenses have been.

Don’t just look at what you spend at the mall. Gifts are probably a big chunk of your holiday budget, but they’re not everything. You also need to consider added costs for food and drink if you entertain during the holidays. Travel costs are a factor if you visit relatives, whether it’s a road trip to Grandma’s or an international flight.

Then there are all the little expenses:

• The gifts for your child’s classroom teacher, and the secretary at your office.
• Yankee swap (or white elephant) items.
• A bottle of wine for the hostess at each of the four holiday parties you attend.
• A dress for New Year’s Eve — and new shoes to go with it.

Once you’ve looked over your expense records for last year (or wracked your memory if you’ve just gotten on the personal finance bandwagon and don’t have last year’s records), it’s time to sketch out a budget. I like to be specific in my holiday budgeting. I make a “Santa’s list” of gifts I expect to buy. I jot down rough expenses for the annual holiday party I host: how much I expect to spend on booze, food and sundry party supplies. I budget out any trips we’re going to take, like visiting my father for Thanksgiving.

This may sound tedious, but I find it really fun. In general I use more detailed budgeting than J.D. does, so I may be predisposed to finely tuning things. If you prefer a looser method, you need only figure out how much your total spending from, say, mid-November through New Year’s exceeded your regular monthly spending. That’s how much extra cash you’ll need to cover your holiday expenses.

If you’re like me, you probably want to take a more detailed approach. In the case of my holiday budget, it’s not a chore at all. It’s sort of an anticipatory activity. I sit down with my husband and plan out what we want to do for the kids this year. I get to imagine how my party will be, and think about what kinds of food and drink I’ll serve. Checking on airfares to Tucson is a chance to think about the Thanksgiving meal I’ll share with my father, and how happy he’ll be playing with my kids. I’m looking ahead to the things I enjoy about the holiday season, while I’m figuring out what each one will cost me. It helps me keep my expectations realistic, and gives me a chance to savor the time with friends and family that I’m looking forward to.

Starting to save

Once you’ve figured out your budget, in whatever level of detail is comfortable for you, it’s time to save that money.

Money doesn’t come from nowhere. To save up a chunk of cash over a few months, you’ll probably want to employ several strategies.

• The first thing you can do is cut back on your discretionary spending. Stop eating out, scale back on entertainment. Stay in with Netflix and a good homemade meal a few times, and you’ll save a decent chunk of cash. Taking a close look at your spending habits will probably highlight some other things you can cut back on: shopping, subscriptions, travel. The usual suspects. If you’ve been managing your finances closely for even a little while, you probably have a good idea of what your personal money sinks are. You know what can be cut for a short period of belt-tightening. Now is the time to do it if you want to splurge over the holiday season.

• Once you’ve cut back your discretionary spending, look at ways to bring in more cash. Some people pick up part-time jobs around this time of year: plenty of places need seasonal workers, from stores at the mall to apple orchards. You can easily pick up a short-term gig doing something that may not thrill your soul, but will put extra cash in your pocket.

• Alternately, you can look at earning money from a hobby or talent. Maybe you can schedule some portrait sessions, or make some money busking in the subway. You might be able to hang out your shingle doing some bike repair or odd jobs around people’s homes. Craft fairs and shops offer opportunities for knitters and crafters to sell their creations. Putting in some extra hours and effort with your creative work this season might well pay off in extra fun money right when you need it.

• Finally, you can sell stuff. Possibly even some of last year’s Christmas presents. You surely have old DVDs, sports equipment or other useful things in good condition that you are never going to use again. Selling your unwanted goodies is a bit of an art. Some people, like J.D., are great at it. Others find it’s more of a hassle than a lucrative hobby.

However you decide to approach saving for the holidays, have fun with it. Not only is it a good idea to put by some extra money for the upcoming season, but it’ll give you good practice at setting a financial goal and meeting it.

Note: Another way to help your Christmas budget? Don’t forget to explore homemade gifts. These can save you money and be fun to make.

Sierra Black

Sierra Black has spent most of her life broke, no matter how much or how little she earned. She started turning that around with some radical life changes like moving, shifting careers and committing to buying nothing new.

Sierra and her family live in the Boston area. Sustaining a family of five on one salary has led to some creative frugal maneuvers over the years, especially living in an expensive urban area. When Sierra isn't working magic on her family's finances, she writes about personal finance, sustainable living and parenting.

View all posts by Sierra Black