You Should Be Saving This Much Of Your Income For Your Holiday Shopping Budget
Even though there's no set amount a person is supposed to spend on holiday presents, it can easily feel like whatever you've purchased is simply not enough. The holidays can be a difficult time filled with not only the stress of gift-giving but also the financial consequences of those gifts. If you feel the constant pressure to buy even more, you're not alone. According to a 2021 Affirm Consumer Spend Report, seven in 10 Americans typically exceed their spending budget during the holidays. A Rocket Money survey, meanwhile, found that 42.6% of respondents reported holiday pressure was the impetus behind overspending, and despite the fact respondents wanted to spend less this holiday season, the average gift spending budget for 2023 is 6% higher than 2022.
Overspending this holiday season might prove especially problematic when you consider that the nation's total credit card debt is already at a record high ($1.079 trillion). This, combined with the fact that, according to the budgeting app YNAB, 68% of Americans feel more tempted to spend impulsively during the holidays, means that setting a budget can be more important than ever. With that in mind, determining how much of your income you should save to meet your holiday goals can be tricky, and while in an ideal world, we could all stick to our holiday shopping budgets with ease, life has a habit of getting in the way of even the most well-intentioned financial goals. Let's dive into some spending guidelines, tips, and things to avoid to help you hit (and stick with) your holiday budget this year.
Budgeting for the holidays
Finding the right holiday shopping budget for you and your family requires you consider various factors. From total income to the number of people in your family to gift expectations, there isn't a one-size-fits-all budget. With that in mind, there is a good baseline for you to work from when it comes to figuring out how much of your income you should try saving for the holidays.
Clearpoint, a credit-counseling nonprofit, recommends you plan to spend approximately 1.5% of your annual income on your total holiday spending (gifts, parties, travel, etc.). From that amount, you can then allocate to your spending categories based on your personal priorities. For instance, if travel is your main priority this holiday season, then spending less on food and gifts can help you ensure your spending still falls within your overall budget.
Another budgetary guideline that could help you save for this holiday season is the 50-30-20 rule. This rule is based on separating your take-home income into three separate categories: needs (50%), wants (30%), and savings/debt (20%). While this rule is increasingly difficult for most Americans to follow given the astronomical rise in housing costs and overall inflation, it can still provide a solid framework for how to rank holiday spending in your overall budget.
Further, keeping holiday gifts in the "wants" category of your budget can help ensure you aren't entering debt or damaging your ability to financially cover necessities and preexisting debts. Since late payment fees and interest will only further damage your finances, making sure to prioritize preexisting bills and payments before shopping for holiday gifts is key.
Sticking to your holiday budget
As difficult as it was to save for your holiday budget, the real hard part comes with sticking to your plan once it's time to start spending it. It can feel tempting to cheat on your budget, and new spending strategies and services can make that easier than ever. If you're serious about sticking to your holiday budget, though, there are some key things you should avoid. First, stay away from the temptation of buy now, pay later apps and checkout services. While these can help your December budget on paper, you'll end up with more expenses in the new year. What's more, missed or late payments can lead to high interest rates that will inevitably cost you even more for your holiday gifts.
Another important thing to watch for when it comes to holiday spending is credit card use. With famously high interest rates, keeping a balance on your credit card can not only end up costing you more money but can also keep you in debt for longer. Relying too heavily on your credit card this holiday season can make your new year that much more difficult. Beyond paying more in interest, keeping a balance can also affect your credit utilization ratio and your payment history, which are both important factors in determining your credit score.
Lastly, as tempting as impulse purchases and lavish holiday gifts can be, the long-term financial ramifications of going over your holiday budget are generally not worth it. Keeping your finances healthy can be the most important gift you give yourself this holiday season.