Holiday spending doesn’t just involve buying gifts. It includes food, entertaining, decorations, holiday travel, cards and charitable. Last week we began discussing how to make a holiday budget and stick to it so that you can avoid a
New Year’s Day debt hangover. We discussed setting a spending limit, making a list of all your expected expenses and how to set priorities. Let move on to step 4.
Now it’s time for the nuts and bolts of budgeting: figuring out how much money to put toward each item on your list. Examine your list once more to estimate how much you plan to spend on each item.
Try to keep your numbers realistic. For instance, if you have 30 people on your gift list, it’s not really reasonable to assume you can buy presents for all of them on a budget of $100. On the other hand, don’t go overboard and be too generous with your estimates, either. If you need one new sweater for a party, there’s no need to assign a budget of $150 to it. Looking at your bills and receipts from last year can help you get a realistic idea of how much each item will cost.
When you add up all the amounts you’ve allotted for all the items on your list, there’s a chance the total will come to more than the spending limit you set back in step 1. If that happens, tinker with the numbers to get your budget to balance.
One way to do this is to make cuts in the areas that aren’t top priorities for you. For example, suppose you’re over budget by $150. Looking over your budget, you see you’ve allotted $200 to throw a holiday cocktail party for all your friends and neighbors. If you scale that back to a smaller afternoon party with punch and cookies, you could probably do it on a budget of just $50. That would free up the $150 you need without requiring any cuts to higher-priority items like gifts or travel costs.
If you’ve cut everything you can think of and you still can’t make your numbers work, try thinking of ways to boost your total spending limit. For example, you could:
Getting your budget down on paper doesn’t mean your job is over. You still need to keep track of your spending as you shop to make sure you stay within its limits. By keeping a running tally of how much you’ve spent in each category and how
much you still have left to spend, you won’t risk blowing through your entire budget in one shopping trip like Wile E. Coyote running blindly off the edge of a cliff.
Setting up a separate bank account specifically for holiday spending can help you stay within your overall budget. There are also several tools to help you keep track of your spending within specific budget categories. One of the simplest is
an old-fashioned envelope system, in which you create a physical envelope for each category – like gifts and decorations – and load it up with the appropriate amount of cash. Each time you make a purchase within this category, pull
the money out of the envelope. You can physically see and feel how much you have left, so you’ll know when you’re in danger of running out.
However, an envelope system requires you to do all your spending in cash, which doesn’t work for online shopping. A more modern alternative is to carry a wallet full of reloadable prepaid cards, one for each category in your budget. Just make
sure you check the balance on each card regularly to see how much is left. Other ways to keep track of your spending includes spreadsheets and budgeting apps.
Next week, we will move on to the hard part -- sticking to your budget.
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