4 Steps to Budgeting for the Holidays Now

Our favorite things about the upcoming holiday season:

  • Visiting with family and friends
  • Sparkly décor and general festivities
  • Gifts (we're just being honest)
  • As much hot chocolate or anything pumpkin flavored as we want, sans judgment

Our least favorite parts of the holiday season:

  • Airfare to visit family and friends
  • How all that fun holiday-themed décor adds up
  • Shelling out for gifts (again, being honest)
  • Sugar coma from the pumpkin spice lattes and guilt about all that hot chocolate

Admittedly, we can't help you very much with that sweet-hot-beverage addiction, but we can help you get through holiday madness with your financial health intact. As reader Mara put it yesterday:

"I am back in debt, but not by much. I want to pay this up by January so this year I will not be buying too many Christmas presents."

Smart! And yes, there is a way to celebrate the holidays in style and show everyone you love them, without winding up in the red yourself.

So today, well in advance of Christmas, Hanukkah, Kwanzaa or whatever you celebrate, we'll break down the four easy steps to budgeting for this year.

1. Decide Where Holiday Spending Fits in Your Budget

LearnVest lives by the 50/20/30 Rule, which states that 50% of your take-home pay should go toward essential living expenses like rent and food; 20% should go toward financial goals like retirement contributions and debt payments; and 30% should go toward your Lifestyle Choices, which are the personal, and often fun, decisions you make about your money. Lifestyle Choices often include things like your cable bill, charitable giving, entertainment, hobbies, etc.

Although holiday spending often feels essential (how can you not give your mom a gift?), it falls into this 30% allocated to Lifestyle Choices.

Of course, if you are planning for holiday travel, gifts and more, you’ll need to bake them into your budget. And unless you already had a ton of wiggle room, this will probably mean cutting back in other areas to make up the difference. We'll show you how below.

The good news? If you start now, you're less likely to feel the pinch, less likely to make spendy, last-minute impulse-present buys and more likely to get a plane ticket for a price that won't eat up your whole gift budget.

RELATED: The Best Time to Buy Airline Tickets for Every Occasion 

2. Calculate How Much Can You Spare

The easiest way to calculate where your holiday budget is coming from is to log in to LearnVest’s Money Center to see your spending trends. These are already grouped in your Financial Inbox according to the 50/20/30 Rule, so you can see at a glance what percentage of your income you’re spending on Lifestyle Expenses.

If you have money left in your Lifestyle Choices before the 30% mark, you can allocate the leftovers to holiday spending—and create a special color-coded folder to account for it. If not, it’s time to trim back.

Could you free up enough for holiday travel by cutting a dinner out once a month, or temporarily stretching your time between salon visits? How about freezing your gym membership for two months and starting anew in January? You'd be amazed by how easy it is to free up funds when you see exactly how much you're spending on what laid out before you.

You can even set a specific savings goal for the holidays in the Money Center and play with various contribution amounts per month to see how far they would get you.

3. Obey the Seasonal Spending Commandments

These are a few easy rules to follow to make sure your holidays are happy and financially healthy:

  1. Never go into credit card debt for holiday spending.
  2. Never dip into your emergency fund for the sake of buying gifts or decorating your home.
  3. Never go into credit card debt for the holidays. Seriously. Ever.

Does that mean you don’t have a lot of cash to spare for gifts for your loved ones? We have a feeling they’ll love you even if you don’t drop a boatload. Here are great DIY gift ideas from last year—and keep your eyes out for this year’s updated version, coming next month.

4. Crunch Your Numbers With Our Holiday Budget Calculator

Every person's situation is unique, which is why we’ve developed a calculator to help you get a rough sense of an appropriate holiday gift budget for what you have to spend this year. We've based it on how many people you have to give to, how comfortable you are right now with your finances and what your current income looks like.

It’s always helpful to have a rule of thumb. That said, this calculator makes assumptions about your life, and you know best. So, get crunching ... and watch the real magic of the holidays happen.

Holiday Gift Budget Calculator

2. How do you feel about your monthly discretionary income?

  • I can’t quite
    make ends meet.
    I am not on track to reach my retirement goals, nor do I have an emergency fund, or enough leftover in the month to contribute to one. I’m also paying off debt.
  • I’m squeaking
    by every month.
    If I have debt, I’m on track to pay it down. I’m putting a little toward retirement and/or emergency savings, but not enough for either one—and I have to watch every dollar.
  • My monthly
    are covered.
    I have my monthly expenses covered and am making headway with savings. If I have any debt, I am on track to pay it off. I’m putting a decent amount toward retirement (though it isn’t the full amount) and have a couple of months’ worth of emergency savings.
  • I’m pretty
    I have little or no debt, am contributing what I need to toward retirement and either have or am close to having a healthy emergency fund. I don’t have tons left over every month, but I have the basics covered and don’t need to stretch every dollar.
  • I’m very
    I have no debt, have a healthy emergency fund and am contributing what I need (or more) to retirement. I have a good amount of discretionary income leftover every month, which is allowing me to save for some big-ticket items.

3. Who’s on your holiday list?

Add recipient

Your holiday budget should be:

less than

Your Holiday Gift Total:


Given your financial situation, we think it’s best if you either go all DIY with your gifts, perform important services for loved ones or simply tell them that gifts don’t fit into your budget this year. If you feel you must absolutely buy things for a few people, try to stay under 5% of your monthly take-home pay, and absolutely do not let your budget exceed 8%.
Proceed to the Calculator

  • Heather

    So I have a question for the masses since I am very new to Learnvest and budgeting in general. I just received my year end bonus, almost 50% of it went to taxes, and 5% automatically went to my 401K. All that remains is about $1,100. I was planning on putting directly towards my credit card which is around $1,350. However xmas is around the corner should I perhaps set $400 aside for gifts? Or just put it towards the card?

    • clout82

      I would put it toward the card–you’ll save a lot of interest that way and crush your balance. I would also find a way to save a smaller amount $100 every month from now to December to pay for gifts. Good luck!