Five tips for building a realistic holiday budget

Learning how to set a realistic holiday budget takes time and practice. Or it did for me, at least.

As much as I would love to say I’ve always been on point with every element of my holiday budget, my January credit card statements say otherwise.

But over time, I’ve learned and improved. And little by little, I’ve refined my holiday budgeting skills to what they are today: better, but still a work-in-progress.

Looking to improve your holiday budget this year? Here are some of my favourite tips for creating a more realistic holiday budget.

Why do I need a holiday budget?

Much like your every day budget helps keep your daily finances on track, a holiday budget does the same for your holiday spending.

Having a solid holiday budget shows you how much you have available to spend, when you can expect to have the money available to you and how far you need to make that money go.

It helps you stay realistic during the holiday season, revealing areas where you may need to scale back — or, alternatively, find ways to increase the funding available to you to make your vision come to life.

Essentially, having a holiday budget means you have a roadmap for how to navigate what can be a very expensive time of year.

Tips for setting a realistic holiday budget

Understanding the role the holiday budget plays, it’s important to approach creating one in a realistic way.

And while I’m not an expert, I have learned a few things over time that have helped me get a little better every year.

Here are five of my favourite tips that have helped me set more realistic holiday budgets.

Start saving as soon as possible

While it can certainly feel like it creeps up on us, the holiday season happens at the same time every year. With that in mind, my first tip for setting a realistic holiday budget is always to start as early as possible.

One of the most effective ways I have found to do this is through the use of a sinking fund.

We have a gift fund that we contribute to all year. This fund covers Christmas, as well as other gifting like birthdays and weddings. For the first seven or eight months, we put about $40 into this account every two weeks, then ramp up our saving for the last few months of the year based on our Christmas budget. This has worked well for us for the last few years.

What I like about the sinking fund method is how it allows you to break up the saving over a long period of time. Putting $20 a week aside for 11 months (47-ish weeks) means you’ll have about $940 saved. Nothing wrong with that!

Of course, not everyone can do $20 a week for 11 months — that’s OK. It’s not about a specific amount of cash for a specific amount of time — it’s about planning. And when it comes to setting your holiday budget, any amount of advanced saving you can do helps.

Know your budget — and how you’ll keep track of it

Whether or not you save throughout the year, it’s important to know what your budget is before you start your shopping.

But that’s only one part of the equation. It’s also important to know how you’re going to keep track of it all once you start your shopping — especially if you’re not operating with a cash-only budget.

We’re not a cash-only family. We tried it for about a year at the start of our debt-free journey before switching back to credit cards. Credit cards don’t work for everyone, but they do work for us. I would say 99 per cent of our purchases, holiday or otherwise, are made with a credit card.

When it comes to holiday shopping, I like to start as early as I can — which at times results in spending money in advance. For us, this is what makes it so important to know what our overall budget is and to keep track of how much we’ve spent.

This approach to holiday spending will not be for everyone. Regardless, before you start spending, it’s a good idea to know what your overall budget is and how you’ll plan to stay on track with it.

Make your list — then check it twice

You don’t need to buy every person in your life a gift. It sounds harsh, but it’s true.

I want to say it took me years to learn this lesson but if I’m being honest, I’m still learning it.

I genuinely enjoy gift-giving. But as much as I enjoy it, there have been times where I have purchased a gift for someone because I felt obligated.

These days, I am trying to be more aware of this behaviour. It’s not always easy, but I have noticed having a more focused gift list makes it easier for me to choose more thoughtful gifts.

And hey, if cutting someone from your list completely feels too harsh, there’s absolutely nothing wrong with sending a nice card.

Set spending limits

You know how much money you have to spend and who you’re going to be buying gifts for this year. The next step is to determine how to ensure your budget covers everyone on your list.

One great way to do this is to consider how much you want to spend per person. Assigning a dollar value to the people on your list might sound a little impersonal, but doing this is a great way to ensure you’re being realistic.

For example, if you have $500 to spend and 10 people to buy for, you likely won’t want to spend $300 on a gift for one person.

The numbers don’t need to be completely set in stone, but they do need to make sense in the context of your overall budget.

Keep an eye out for deals

My final tip is less about creating a budget and more about how to make the most of it once you have it in place.

One big thing I’ve learned over time is that planning ahead is really the best way to catch great sales and deals.

The example I always use when I talk about this is Jeff’s bike. I wrote about it in detail here, but the gist is this: by planning ahead, I was able to capitalize on not one, but two great deals, which resulted in saving hundreds of dollars on the purchase — and made it possible to stay on budget.

Keeping your eyes open for deals is a great way to make the most of a realistic holiday budget.

Final Thoughts

These five tips are some of my favourites, but here’s the truth: I learn something new almost every year that helps inform how I plan for the year to come.

I don’t think I’ll ever become an expert (if there’s even such a thing) but I’m OK with that. I like that my process evolves over time.

Do you have any tips for setting a realistic holiday budget?

Photo by Sarah Pflug from Burst