How much should you spend during the holiday season?

A Gallup poll from November 2015 indicates that, on average, American adults who expect to spend at least some money are planning to spend about $908 on Christmas gifts this year. Whether that’s a lot or a little may depend on your circumstances, but it is $118 more than the average adult planned to spend last year. Here are some ways you can think about how much to budget for your post-Thanksgiving holiday spending.

What expenses might you need to consider?

Gallup’s poll only asked people about Christmas gifts, but regardless of your religion or personal preferences, there are many expenses you may need to budget for this time of year. In addition to gifts, people may spend more money than usual on travel, food, parties, and charitable giving, either as a cash donation or by buying and donating food or presents.

Gallup Holiday Spending Poll

Clearpoint’s holiday budget planner recommends spending a maximum of 1.5 percent of your family’s annual income on holiday expenses. To put that amount in perspective, if your family earns $53,000, slightly below the median household income in 2014, that’s $795 total for the holidays. That’s in line with the response of only about 20 percent of those polled by Gallup, who said they plan to spend between $500 and $999. 14 percent of those polled plan to spend even less, between $250 and $499.

How much you should spend depends on your financial situation

Regardless of how much or little others plan to spend, your budget should be based on your circumstances. Basing the budget on your annual income is a good starting place, and a great rule of thumb to follow, but you should still consider your larger financial picture before settling on a number.

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Here are some specific considerations to keep in mind:

  • Manageable Debt. If you have manageable debt, perhaps a car loan or mortgage that you don’t have trouble making monthly payments on, try not to get into more debt during the holidays. You don’t want to spend so much that you’ll no longer be able to meet your other financial obligations, nor do you want to pay off holiday debt for months to come.
  • Unmanageable Debt. If holiday spending requires you take out a short-term loan or pay using a credit card that you can’t pay off in full, you may want to take a deeper look at how much you can afford to spend. Patrick Daniels, a financial planning analyst at Precedent Asset Management in Indianapolis, Indiana believes, “If a person is continually using their credit card to pay for everyday expenses and doesn’t have a budget in place to pay it off, they should not be spending any amount for the holidays.” That may not be realistic, especially for those with children, but his point is an important one: Don’t let the holidays make a challenging financial situation even worse. Below there are some suggestions for how to give presents and celebrate the holidays without spending much money.
  • Emergency Fund. Patrick also points out that people should look at their emergency fund, or lack of one, before deciding how much to spend on the holidays. An emergency fund is a pool of money that’s equal to about three to six months’ worth of expenses and used for real emergencies, such as losing a job, getting in an accident, or taking on unexpected medical costs. Building an emergency fund can take time, which is why Patrick says spending money on the holidays is fine as long as it doesn’t eat into your planned emergency fund contributions.

Start budgeting for the holidays early

Holiday expenses can quickly add up, but they should not come as a surprise. Although it may be too late this year, budgeting for holiday spending throughout the year may be a good approach. Pamela Horack, CFP®, the founder of Pathfinder Planning LLC in Lake Wylie, South Carolina points out that even taking $5 or $10 out of every paycheck and putting it aside for holiday spending can add up. If you’re paid twice a month that’ll be $120 to $240. It may not be enough to cover all your expenses, but it can make the bills less burdensome.

Pam also recommends one tactic for sticking with your budget once you’ve determined how much you have to spend. Pam says, “Take that amount of cash and put it in an envelope. Once it is gone, you are done shopping. This forces you to pick and choose what is really important so you can spend wisely during the holidays.”

Ways to save on gifts and celebrations

Both Pam and Patrick were quick to point out that there are many ways to save money during the holidays if you look for alternative gift ideas. You could offer to babysit so that the parents can have a night off, create coupons for an afternoon at the park or library for young relatives and friends, or make large batches of baked goods and give those instead of buying individual gifts. Inexpensive holiday activities include hosting a dinner for friends and family with a white elephant gift exchange, caroling, or touring the neighborhood’s decorations.

Be flexible to get the most out of your budget

As you look over your holiday budget and start to tally potential expenses, remember the different categories and try to figure out a way to balance spending in each. It can be difficult to find the funds for travel, gifts, and parties, but you may be able to use a single dollar to satisfy multiple needs. For example, your gift to friends one year might be hosting a large dinner party. Or, instead of buying toys or games, the presents one year might be a trip to see relatives and a day at an inexpensive attraction near their home.

Find the correct amount for you

There isn’t necessarily a right or wrong amount to spend during the holidays, but there are some basic guidelines you can follow. You may want to set yourself a budget based on your annual income and start saving money early in the year, but you also might find that your individual financial situation is more significant than your income.

If you’re having trouble paying bills or don’t have an emergency fund, you may want to cut back on holiday spending. There are many inexpensive or free gifts and activities you can share with friends and family and, in the end, creating memories with those you love is more important than how much you spend on gifts.

Louis DeNicola is a personal finance writer with a passion for sharing advice on credit and how to save money. In addition to being a contributing writer at Clearpoint, you can find his work on Credit Karma, MSN Money, Cheapism, Business Insider, and Daily Finance.

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