Between gifts, food, travel, and all the rest that comes with the holidays, the average Canadian will spend around $1,478. Unfortunately for many, this means that the joy of the holiday season is dulled, or stripped altogether, by financial stress. It doesn’t have to be this way. Having a solid holiday budget is a great way to balance festive fun and finances.
Building your holiday spending plan
A simple, practical holiday budget is easier to stick to and increases your odds of success. Here are a few tips to make that happen.
Spending limit is key
Stress-free budgeting begins with staying within your means. If you’re confused as to how much to budget, many find a good starting point is to allocate 1% to 2% of your annual income toward holiday expenses. That would mean if you earn $50,000 annually, your holiday budget would be between $500 and $1000.
Review last year’s spending
The holidays are a natural time for reflection, but many don’t think to include holiday finances in this practice. Take inventory of what happened last year. Did you overspend? Was a lot of food wasted? Do you need to replace a string of lights that burnt out last year? Identifying where you can cut back or will need to add on will help create a more accurate picture of what your holiday budget should look like.
Categorize your expenses
Breaking down your holiday budget into specific categories helps ensure you cover all your bases. Here is a list of the most common categories and a suggested portion of the budget.
- Gifts – 50%
- Parties & Dining (hosting or eating out) – 30%
- Decorations – 10%
- Miscellaneous (Cards, wrapping paper, etc.) – 10%
Depending on your situation, you may also want to include a travel or entertainment category. How much is allocated to each category will vary for every person. Allocate to those categories that matter most to you.
List it out
The gifts category tends to be the most complicated and the one most easily overspent. To help stay on track, create a list of everyone you plan to buy for and set a specific spending cap for each individual. Write down gift ideas and track what you’ve bought, including prices and where you shopped.
Smart strategies for sticking to your budget
Shop early and take advantage of sales
Timing your purchases in an ideal way can really help stretch your holiday budget. Big sales like Black Friday, Cyber Monday, and other pre-Christmas discounts are excellent ways to save money. Your and your loved ones’ favourite brand and store newsletters and loyalty programs are great resources for savings. Price comparison tools or apps can also great resource for finding the best deals.
Get creative with gifts
Homemade and thoughtful
Crafting personalized gifts like photo albums, baked goods, or DIY candles often costs a lot less than a store-bought gift and yet are very thoughtful.
Experiences over material
Memories often mean more than things. Even the best part of a great gift is usually the thought (aka memory) behind the gift. Plan a family outing, host a cozy movie night, or bake cookies together. These don’t have to be elaborate or expensive experiences. Many communities offer free things like hiking, ice skating, or attending a local winter festival.
Gift exchanges
Organize a Secret Santa or White Elephant among friends or family. Everyone will still receive a gift and have fun, but at significantly reduced costs.
Shop secondhand
It’s the thought behind the gift, not the cost, that matters most. That’s why thrift stores, consignment shops, and online marketplaces are excellent shopping destinations. They offer unique, affordable gifts and, as a bonus, are a sustainable option..
Implement a gifting guideline
Gift-giving guidelines can help prevent overspending, and the built-in focus encourages meaningful gift choice. For example, for the kids, you might implement the “Rule of Four”. This is a popular practice where each kid gets “something they want, something they need, something to wear, and something to read”.
Ways to save on non-gift expenses
Travel
Travel, especially around the holidays, can really eat away at a holiday budget. As a good rule of thumb, the earlier you book flights and accommodations, the lower the prices. Alternatively, road-tripping saves you on airfare and rental cars.
Decorations
There are many ways to save on holiday decor!
- Reuse last year’s decorations
- Make your own from inexpensive materials
- Swap with friends and family
- Purchase new decorations during post-holiday clearance sales
Parties
Cut holiday food costs way down by hosting a potluck. Entertainment doesn’t have to break the holiday budget either. Simple trivia or cookie decorating can be a lot of fun!
Use financial tools and habits
A holiday budget can go awry quickly if it’s not paired with some good financial habits, like regular check-ins and updates. Below are some best practices to put in place and some tools to help you keep them up.
Cash-only system
Debt and credit cards make it really easy to overspend, so use cash instead. Withdraw your allocated holiday budget cash and then divide it into labelled envelopes. Once the cash is gone from an envelope, spending in that category stops.
Budgeting apps
For a more tech-friendly option, use mobile banking apps to track holiday spending in real-time. Some apps even have an option to set limits in categories and get alerted once you hit a certain amount in your account.
Reward points and cashback
Maximize your festive spending by using up all those rewards, cashback programs, or store loyalty points you racked up over the year. Redeem them for gift cards, merchandise, or travel discounts.
Avoid impulse purchases
Stay true to your gift list when you’re shopping in-store. If you’re prone to indulging in extras the check out, consider shopping online, or use a store pick up option. Using cash also helps moderate impulse buying.
Budget buddy
A trusted friend or family member can keep you accountable and offer a “financial reality check” when you’re tempted to overspend.
Earn extra cash
Give your holiday budget a boost by earning extra income. The holidays offer lots of opportunities to earn money through seasonal work, gig opportunities, or by selling unused items around your home.
Planning for next year and beyond
Your best defence against holiday budget-busting is to be proactive. These are a few strategic ways to stay ahead of holiday debt.
Post-holiday review
Ask yourself, “How did I do this year?” Review this year’s holiday spend and compare it against the budget. Were there places you overspent or underspent? What did you buy this year that you won’t need to buy next year? Make note of all this info so you can improve future budgets. Did you run out of something, or will anything need to be replaced for next year? Post-holiday sales are a great time to stock up on discounted essentials like wrapping paper or decorations for next year.
Save throughout the year
Ease financial stress around the holidays by establishing a dedicated holiday savings fund at the beginning of the year. Even setting aside $20-$50 each month or week can go a long way. Automate these transfers to stay on track effortlessly. Alternatively, those paid bi-weekly have two months in the year where they get an extra paycheque. One (or both) of these paycheques can be used as, or supplement, a holiday budget.
Invest holiday savings
If using all these tips leaves you with holiday funds left over, consider investing at least a portion of them. This could also go for any monetary gifts you received for the holidays. Putting these extra funds in a Tax-Free Savings Account (TFSA) or Registered Retirement Savings Account (RRSP) will grow your wealth tax-free, and you’ll benefit from potential tax advantages.
Wrap-up
A holiday budget isn’t meant to dampen the holiday spirit. In fact, many find that following a sound holiday spending plan allows them to enjoy the festive season even more because they’re not worrying about what’s happening with their bank account. That’s the benefit of taking a little time to set limits, planning ahead, prioritizing meaningful purchases, and using smart financial tools.
If we’ren’t able to implement these ideas this holiday season and are struggling with holiday debt, we can help. Our trained Credit Counsellors will help you come up with a sound debt-relief plan to set you up for financial success for next year.
