The 50/20/30 Guide to Holiday Budgeting: Financial Planners Share Their Secrets

The 50/20/30 Guide to Holiday Budgeting: Financial Planners Share Their Secrets

We know that December can be a tempting time of year, especially when it comes to overspending.

Unfortunately, the budget organization principle known as the 50/20/30 rule doesn't look kindly on temptation.

The rule says that up to 50% of your monthly budget should be designated for essential expenses, such as rent and groceries. At least 20% should go toward financial priorities—debt payments and retirement savings—that will help you build a strong foundation. And 30% should be allocated for lifestyle choices, including eating out, shopping and charitable giving.

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The problem is that the cash you lay out for your seasonal trappings—whether it's yards of tinsel, gifts for friends and family or a special treat for yourself—is considered a lifestyle choice, so it's easy to put a strain on that 30% during the holidays.

In fact, according to research from Chase Blueprint® and AOL, one-third of people plan to get gifts for themselves this year. And those who “totally agree” that self-gifting is important also expect to spend $935 on others—underpinning the need for a carefully thought-out holiday budget.

Understandably, you may start wondering: Is my spending normal? Of course, everyone’s breakdown is different: The largest chunk of your 30% may go toward gifts, while your neighbor’s pays for super-sized lawn ornaments.

So to help you better keep your holiday spending in check, we asked three budget pros—LearnVest Certified Financial Planners™—to divulge how they divvy up their own seasonal expenses. Take that, temptation!

RELATED: 12 Clever Secrets to Keep Holiday Costs in Check

pie_chart_natalieThe 12 Months of Saving

Natalie Taylor, CFP®, Santa Barbara, Calif.

“Each month, my husband and I put money into our ‘fun’ account, which is meant to cover expenses that don’t fall within our regular budget: expensive nights out, gifts above our $50 monthly present budget, extra travel, spa days and guitars—my husband is a recovering sound engineer who has guitars stashed under every bed! We also put 40% of any windfall into the account. I’d estimate that about 4.5% of our income for November and December will go toward holiday expenses—and the fun account is where we'll get that money.

RELATED: How Much of My Paycheck Should I Save Each Month?

"We celebrate Hanukkah and Christmas, so we make a gift list and designate a budget for each present before the holidays. In fact, my husband and I just cleaned out our garage, selling a bunch of stuff we no longer needed through Craigslist, and I think we’ve made enough to cover that budget!

"Whenever possible, we also ask family members if they’d be up for donating to charities instead of exchanging gifts, and we’ve suggested that perhaps they could put some money toward our son's college fund or stuff a $10 bill into his piggy bank.

"We also don’t exchange gifts with friends or co-workers. If I do want to give a small gift to someone, I’ll make something, like wrapping up some thyme with a note that there’s never enough ‘thyme’ around the holidays.

"As for entertaining, I spend most of my budget for it early in the holiday season. We host both Thanksgiving and 'Friendsgiving,' which is a potluck to help keep costs low, but we provide the turkey, gravy, cranberry sauce, rolls and drinks. For Thanksgiving, we prepare everything, and we had nine people over this year—plus family staying with us for the long weekend, which meant five more mouths to feed."

RELATED: The 9 Best Quick Dinner Party Dishes

pie_chart_davidMaking a List, Checking Costs Twice

David Blaylock, CFP®, Fort Worth, Tex.

“My wife and I save about $100 per month during the year for our holiday spending, which I add to our personal escrow account. We usually allocate about 1% of our gross annual income for this account.

"Like most families, we're tempted to overspend, but we find that making a list of the people who we want to buy gifts for, and then setting a price limit for the total list, helps us stick to our budget. Setting a limit for the list, instead of just specific people, gives us flexibility—sometimes one person's gift will cost more, but we can save on another individual's present.

"We also try to buy gifts for family and friends that are made locally: We have a coffee roaster, brewery and candlemaker that we like—and all of them make affordable, unique gifts. If we do buy from bigger retailers, we use our Amazon Prime membership to get free shipping on everything.

"As I've gotten older, I now understand what it means when someone says that it isn't the gift that matters, but the thought. Spending time with family and friends is really the most important part of the season—along with helping others.

"My father was a UPS driver, and he'd find someone who was in need on his route every year. My parents would provide for clothes, food or things like utility bills for that family. I got to meet many of them growing up, and it's something that has shaped my holiday giving—my wife and I now make it a point to find local families to help during this time of year."

RELATED: Why Most of Us Do Charitable Giving All Wrong

pie_chart_ellenGifts From the Heart

Ellen Derrick, CFP®, Waco, Tex.

“My budget is relatively low-key, and I definitely plan ahead. For starters, we stay home to celebrate Christmas every year, since my husband’s family is nearby, so we don't have to spend money on travel. And I try to pay attention to comments that friends make during the months leading up to Christmas, so I can pick up some gifts in advance and stash them in my closet. I probably have at least half of my shopping done before Thanksgiving rolls around, which means that I can take advantage of sales and deals all year long, instead of paying full price when it gets down to the wire.

"Now that I'm older, I also find that I'm not as tempted to buy for myself. I remember the old ‘one for you, two for me’ kind of shopping I used to do back in the days when I wasn’t as concerned about saving for retirement and paying down my mortgage. I’d shop for presents and come back with at least as much stuff for myself. These days, I’d much rather find something that will make someone else happy—although I can't completely rule out a little self-gift here and there!

"I've also learned that some of the best gifts don’t have to be expensive. Last year, we lost our beloved dog to cancer four days before Christmas. Months earlier, I'd taken photos from his entire life and made a photo book for my husband, which I tucked away until the holidays. It cost about $20, and my husband said it was the best present he’d ever received.

"Charitable giving also figures into my holiday budget. A few years ago, I couldn't figure out what to get as gifts for my sisters-in-law, so I decided to make a donation to a local, nonprofit spay/neuter clinic in each of their names. Since they are both dog lovers, they adored the gifts—and returned the favor by making a donation in my name. It's become somewhat of a tradition, which I love."

RELATED: Bargain Shopping 2.0: The New Rules for Scoring Deals

Want a better idea of how your own budget fits into the 50/20/30 rule? Check out LearnVest Planning Services' seven-step Action Program.

LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment advice. Please consult a financial adviser for advice specific to your financial situation. LearnVest Planning Services and Chase (or any of its affiliates), as well as any other third parties listed in this message, are separate and unaffiliated and are not responsible for each other’s products, services or policies.

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