Year-End Budgeting and How to Position Yourself Leading Into the Holiday Season

It's the holiday season again, and as much joy as Christmas brings, it can also wreak havoc on our budgets. In 2022, the average American spent $997.33 on Christmas, according to the National Retail Federation. That's more than we have spent in any year since 2008 but much less than some other countries when defined as a percentage of household income.

As a nation, we love Christmas, and who could blame us — Jesus, the gifts, the food, the decorations, and the parties. Unfortunately, however, all these items (but Jesus) can come with a price tag attached. 

If you aren't careful, having a holly jolly time at Christmas can break the budget for 2024 before we even ring in the new year. 

This article looks at how you might best position yourself for the holidays and the start of the new year.

The Year-End Budgeting Challenge

Balancing income and expenses is never easy, but the holiday season can be even more challenging. 

Americans spend most of their holiday money, about 64.9%, on gifts for family, friends, and co-workers. Food and decorations take the next most significant chunk, followed by non-gift items for friends and family, such as travel expenses to a holiday gathering. On top of the presents and decorations, many people also make their most significant contributions to charities in the fourth quarter - often due to end-of-year tax planning. However, that's a topic for another day.

None of those categories look like something you want to cut from your holidays, not without losing a lot of the season's cheer. 

The best approach often starts with understanding why you spend what you do around the holidays and then taking action. 

Understanding the Psychology of Holiday Spending

In 2018, the Society for Personality and Social Psychology published an article titled, "Emotionally stable people spend more during the holidays, according to a new study." In other words, science has evidence: If you enjoy giving, you're more likely to be an open and creative person.

So, if you're a giver, that's a good thing!

However, it's not good if you consistently overspend your holiday budget. People can overspend for different  reasons, some of which may include:

• Emotional Influences: Have you noticed that stores fill their lobbies with festive treats, trees, and other holiday paraphernalia? The whole store feels so warm and inviting. There's a reason for that: retailers know the sights, scents, and smells that entice you to buy from them. They use those to their advantage

• Social Proof: Humans copy each other. As friends share pictures of their purchases on social media, it influences us into thinking we need to buy more.

• Bargain Hunting: Shopping induces the thrill of the chase. Buying something on sale can trigger a sense of accomplishment, and we want to do it again to experience the same feeling. Unfortunately, too many items from the sales bin can break the budget as quickly as a single nice gift from the display stand.

• Parenting Pressure: Holiday photo shoots tend to feature picture-perfect families with nicely dressed children, beaming adults, and mounds of brightly wrapped packages resting colorfully under a professionally decorated tree. The photo can make you want to be that parent with that family. 

• Holiday Guilt: It's the season of generosity, but it's not the season of irresponsibility. Give what you have budgeted, but don't allow a friend or charity to guilt you into giving more just because it's Christmas.

• Ease and Convenience: Online shopping, door-to-door delivery, and payment apps like Apple Pay have made shopping easier. You may need to turn off these handy tools during the holidays if you have trouble managing them. 

Now that you know how and when you might feel tempted to overspend, let's look at ways to resist that temptation.

Preparing Yourself Financially for the Holidays

It's best to prepare yourself ahead of time. Navigating the increased financial pressures of Christmas can strain your wallet and relationships. Saying "no" to your kids (or their grandparents) is never easy, and the holiday season is no exception. 

Learn to say "No" gracefully. You can say "no" to hosting the party, gift exchanges, major decorating projects, Christmas baking extravaganzas, church events, or even to giving gifts. Your time and money are your responsibility, and only you can decide how you steward (or use) them.

It's okay to tell your teenager or toddler that you can't (or won't) buy everything on their list. It's even okay to say "no" if your parents expect you to provide gifts you can't afford. "No" is a good word; we should all feel comfortable.

Create a dedicated holiday budget once you've strengthened your "No" muscle. Your holiday budget should be separate from your monthly expenses. Decide ahead of time how much you will spend on gifts this year. Then, consider categorizing your spending according to gifts, individuals, travel, entertainment, decorations, etc. Set limits in each category, and stick to it. 

If you're like most people, gift expenses will occupy the lion's share of your budget. How will you prioritize those?

Some parents abide by the four-gift rule. Each child gets something they want, something they need, something to wear, and something to read. Other parents set the limits at two, five, or seven gifts per child. Whatever the number is, stay within that amount.

Secret Santa among adult children can be a great way to get everyone something on their list without having to break the bank. You can also give alternative gifts like hosting a party for your friends, taking someone to a movie, or sharing homemade treats or other items.

Christmas is also an excellent time to encourage children to practice generosity. As a family, you can give to a charity, donate gifts to a homeless shelter, or volunteer for a church-based event. When they are grown, your kids are more likely to remember their memories of giving back to others than to remember whatever gift you bought them this year. 

You can always give more at birthdays or other milestones your child celebrates throughout the year — when prices may be cheaper, and the volume is easier to manage. 

Once you've decided on how much to buy and for whom, set a spending limit per person and stick to it. Your boundaries should be based on your financial reality, not on any rules you've imposed on yourself. For example, you don't have to give someone a gift just because they give you one. You don't have to gift something to every teacher, coach, neighbor, and friend. And you don't have to provide an expensive gift for someone just because they offered one to you.

Let Christmas be joyful by drawing appropriate boundaries, minimizing debt, and maximizing savings.

Tips to Maximize Savings and Minimize Debt at Christmas

• Give yourself the gift of paying down debt. If you are paying off credit cards, auto loans, or student loans, give yourself a boost this Christmas by making an extra payment.

• Give yourself an extra deposit in your savings account. Will you receive an end-of-the-year bonus? Instead of spending it, how about adding it to your savings or investment account?

• Sell your stuff online. Other people are looking for low-cost gifts at this time of year. Why not sell your gently used items online and make you both a little richer?

• Host a virtual party. Forego the expenses of an in-person gathering for the fun of a virtual event. We did it during the pandemic, and it worked. We can do it again, especially if we want to invite people who may not live nearby.

• Buy gifts with cash. Credit cards can be dangerous. Even debit cards can tempt you to overspend. The safest way to trade is still with cold, hard cash. When you see the bills disappear into the till, you know they're gone. 

Prepare to Cope With Financial Stress at the Holidays

In December 2022, 57% of Americans said they couldn't afford the gifts they wanted to give. As a result, many families were stressed out, in conflict, and disappointed at the holidays. 

You and your family deserve better. This year, commit to establishing and maintaining healthy boundaries, setting and sticking to a budget, and paying down your debt. But most importantly, keep your relationships strong and your heart healthy at Christmas.

For most of us, that means staying connected to the people we love, saying "no" when it's good for us, and doing things we enjoy to build memories for the future. If you would like to talk with someone about how to get ready for your financial future, give us a call today.