According to the American Research Group, shoppers around the country are planning to spend an average of $861 on gifts alone this holiday season. Other studies estimate that figure to be even higher, approaching $1,000. These figures are alarmingly high, especially considering that they don’t include other holiday expenses that are easy to overlook—things like travel, food, party supplies and so on. Once you account for all of these holiday expenses, how much should you spend in total? It turns out that there is an easy formula to help make sure you don’t overspend and extend your holidays beyond your financial means.
Formula for Holiday Spending
The formula for holiday spending accounts for gifts, food, parties, travel and holiday donations. Once these are included, you should spend no more than 1.5 percent of your income on them. It’s that simple.
Let’s return to the estimated average of $861. If that was 1.5 percent of someone’s income, then they would be making $56,666. But we know this figure doesn’t include a lot of the other holiday expenses, and if we add those in (even with conservative estimates), then $861 is probably closer to $950. And if $950 is 1.5 percent of income, then the income is $63,333.
Why does any of this matter? The reason is that the median household income in the United States is about $50,000, putting the average recommended holiday budget at $750. This is more than $100 less than the average American gifts budget reported in the study! (Of course, higher income earners might have skewed that figure, but we still need an important reminder to watch our holiday spending!) Once you establish a budget ($750 in our case), you should then choose how to allocate the money to your different commitments. Here’s an example:
Total Budget: $750
Gifts – 50%: $375
Parties – 10%: $75
Travel – 20%: $150
Food – 10%: $75
Donations – 10%: $75
Check Out Our Tool
This looks easy enough, right? But we have a tool that makes it even simpler. Check out our holiday budget planner, which uses your income to create your holiday budget and then let’s you allocate funds. You can even list the people you are buying for, the items you need to purchase, etc., so it’s handy from an organizational standpoint, too.
Santa’s not the only one who makes a list and checks it twice. Be sure to work on your holiday budget list, this year too! If you would like further help with your budget or getting out of debt, please contact us for free credit counseling. Our credit counselors are ready to help turn this holiday season into your best financial season.