Black Friday and Cyber Monday have come and gone. So you may think that setting limits on holiday spending is a lost cause, right?
Not so, said Jamie L. Clark, a certified financial planner in Seattle. The December holidays are still weeks away. “It’s never too late to make a plan.”
Chuck Howard, an associate professor of business administration at the University of Virginia’s Darden School of Business, said research suggests you’ll spend less by setting a holiday budget that’s “optimistically low.”
That’s because even when compliance with budgets is weak, setting stricter, even somewhat unrealistic budgets tends to lead to lower spending, according to a study he helped write on the influence of budgeting on personal spending.
Dr. Howard cited this example. Say you usually spend $500 a month dining out. You may think a realistic budget is $400 a month. But if you really want to cut back, you should set a budget of, say, $250. That way, if you spend $350, you’ve still spent much less than you used to.
A tight holiday-spending limit serves as a reference point, he said, and even if you surpass it, you’ll probably spend less than if you had set a higher limit or hadn’t set a budget in the first place.
“It will positively influence their spending,” he said. “It helps them spend less than they are used to.” (The study, published in The Journal of Consumer Research in 2023 and written with Marcel F. Lukas, a senior lecturer in banking and finance at the University of St. Andrews in Scotland, is based in part on an analysis of the budgets and spending of thousands of users of a personal finance app in Britain.)
One caveat: Consumers must track their spending regularly, Dr. Howard said, so they can see where they stand in relation to their goal. A variety of apps, like Monarch Money or Quicken Simplifi, can help you monitor spending. Dr. Howard said he prefers an Excel spreadsheet, but he also knows people who use pen and paper.
What’s the point of a budget if you blow it? “I don’t think it’s helpful to feel really bad about going over your budget,” Dr. Howard said. That makes it more likely you’ll completely abandon the effort. Rather than focus on your failure to stay below the limit, he said, ask, “Did I spend less than I might have?”
Sarah Paulson, a certified financial planner in Appleton, Wis., said that even if you were well along on your holiday shopping and didn’t want to create a spending plan, it was still worthwhile to document your purchases. That way, you’ll have an idea of what you may want to spend next year and can plan ahead. “We’re playing the long game,” she said.
Community banks and credit unions may still offer so-called Christmas club savings accounts to encourage customers to contribute a little each month throughout the year.
When tallying holiday spending, Ms. Paulson said, be sure to include not just gifts for friends and family but also the cost of food and drink for entertaining and items like decorations and gift-wrap.
Kyle McBrien, a senior financial planner with the online financial services firm Betterment, suggested saving for 2025 holiday spending in a dedicated high-yield savings account (but only if you’re on track with other goals, like retirement saving). If you’re financially able to contribute the maximum amount to your workplace 401(k) retirement plan, he said, you might try front-loading your paycheck contributions so that you reach the annual limit by the end of next November. That means the deductions will stop and your December take-home pay will be higher, so you can use the extra money for gifts and other holiday purchases. (Employers vary in how they manage retirement plans, so check with your payroll office to make sure yours allows this, and to confirm that doing so won’t affect matching contributions you receive from your employer.)
Here are some questions and answers about holiday budgeting:
How can I cut holiday spending without disappointing friends and family?
Ms. Paulson said young people, in particular, may feel pressure from marketing on social media to buy expensive gifts. Focus on spending time with people, she said, rather than spending money. “No one who truly loves you wants you to take on debt to buy them a present,” she said.
Mx. Clark, the Seattle financial planner, suggested talking with your family to agree on a maximum amount to spend on gifts and putting holiday spending in context with longer-term financial goals. You may be giving priority to saving for other things — like a car or a down payment for a house. “You don’t want gifts for other people to derail your goals.”
Lukas Battle, a stand-up comedian in New York whose TikTok video popularized the concept of “loud budgeting,” said the practice of being open with others about your circumstances and your willingness to spend money could also apply during the holidays. He advised first asking, “What do I value? What do I want to spend my money on?” Then “tell people what your plan is.” Maybe it’s putting together small gift bags, he said, or cooking a meal for friends. When he was a child, his family emphasized items like board games to play together. Setting aside time to go for a walk with a friend or to host a movie night at home can be more rewarding than splurging on a pricey night out. “The main idea,” he said, “is communication.”
Yanely Espinal, a financial educator and author of “Mind Your Money,” said buying gifts for her large extended family would be financially difficult. So at Thanksgiving, each family member draws a name from a hat and buys a gift for that person. Ms. Espinal said she preferred to make donations to 529 college savings accounts for younger family members rather than buying toys, and encourages others to do so as well. “They know I’m a personal finance nerd,” she said.
Should I consider special cards and payment plans offered at retailers?
Retailers selling electronics, jewelry and home improvement materials often promote “deferred payment” credit cards, which let you purchase an item without paying interest for a year or longer. But steer clear of such offers unless you are sure you can pay off the balance by the end of the promotional period, said Chi Chi Wu, a senior attorney at the National Consumer Law Center. Otherwise, you’ll be charged interest — typically in the double digits — from the date of purchase, which can add hundreds of dollars to the cost of the item.
Most online retailers offer “buy now, pay later” plans, which typically let you choose to pay for purchases in four installments that are automatically deducted from your bank account. Ms. Wu advised caution in using them for multiple purchases at the same time. You could end up with several different payment dates. If you lose track and an automatic withdrawal overdraws your account, you could be charged an overdraft fee by your bank.
What if my credit card bill has become unmanageable?
You’re not alone. Credit card balances increased by $24 billion, to $1.7 trillion, in the third quarter of 2024, according to the Federal Reserve Bank of New York. If you need help getting your debt under control, consider a consultation with a nonprofit credit counseling agency. (Search for reputable providers on the website of the National Foundation for Credit Counseling.) A counselor can review your situation and recommend options, such as a debt management plan, which reduces the interest rate on the money you owe in exchange for agreeing to pay it off over several years.
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