How to Create a Holiday Budget When Money Is Tight

The holidays can be financially tough. You may be heading into the season with little in your savings to afford gifts, travel, and celebrations. Creating a Christmas budget can ease the burden and help you save money. Start by deciding the maximum amount you can afford, listing every seasonal expense, setting limits for each category, subtracting the money you already have available, and adjusting the plan until the numbers make sense.  

If a gap remains no matter how many expenses you cut, a small personal installment loan might be the answer. It comes down to how the monthly payments affect your budget. So let’s start with the budget itself.

How to Create a Holiday Budget in 5 Steps

Creating a holiday budget is similar to a regular budget, but with a few Yuletide twists. Here are the basic steps:

1. Calculate what you can realistically put toward the holidays
2. List every expected holiday expense
3. Set a spending limit for each category
4. Compare expected costs with the money available
5. Cut or adjust expenses before deciding whether you need additional funds

1. Start With Your Regular Monthly Budget

You should start by adding up all your monthly take-home income. Then, subtract all essential obligations like rent, utility bills, groceries, and insurance payments. What you have left over is often called discretionary income.

2. List All of Your Holiday Expenses         

When thinking about how to create a Christmas budget, you probably have gifts as the top holiday expense, but it goes way beyond that. You should also take into account spending on:

• Small forgotten costs such as parking, tips, or last-minute supplies
• Holiday meals and extra groceries
• Travel or gas
• Lodging
• Parties and entertainment
• Decorations
• Shipping and postage
• Wrapping supplies
• Charitable giving
• School and work gift exchanges
• Photos or cards
• Seasonal clothing

3. Give Every Category a Spending Limit

After making note of all the categories of holiday expenses, set spending caps on each. These caps set the ceiling on how much you’re able to spend. While this is about holiday spending, you should keep savings in mind as well. Fill out the chart below to figure out your holiday expenses.  

4. Subtract the Money You Already Have Available 

Take the total you plan to spend on the holidays and subtract it from the discretionary income. For example, you might have:

• Planned holiday spending: $900
• Money available after regular expenses: $650
• Remaining gap: $250

You may have a gap, like in the example above. If that’s the case, the next step is about bridging that gap.

5. Reduce the Gap Before You Shop

Shoring up a gap in your budget is about reducing your lowest-priority expenses first and then tackling the big ones. Money-saving tips for the holidays include lowering per-person gift limits, organizing a gift exchange, simplifying meals, combining trips, comparison shopping, or cutting nonessential purchases. Ideally, you want the gap to go to zero, but that won’t always be the case.

What If Your Holiday Budget Still Comes Up Short?

If planned holiday costs are still greater than the money available, you have four major options: reduce spending further, increase income, postpone expenses where possible, or consider financing. 

Financing might be one of the most direct ways to meet your holiday budget, but it shouldn’t be done just to fulfill your Christmas wishes. Instead, consider whether the required repayment can fit alongside normal expenses after the holidays and the amount actually needed to close the remaining gap.

When a Small Installment Loan Enters the Budget

A personal installment loan from Security Finance allows borrowers to secure a specific amount of money and repay that money, with interest or fees, through a series of fixed monthly payments or installments. Typically, these loans have set terms and equal monthly payments. Those monthly payments make it easy to calculate and understand how they fit into your budget.   

That’s the real crux of it. It’s not just about qualifying for a loan, but also how it affects your budget. 

Learn more about how traditional installment loans work

How to Budget for an Installment Loan Payment 

Before borrowing for holiday expenses, add the monthly loan payment into your budget. Loan payments should be treated as an essential obligation like your rent. Monthly expense information is part of the application process, so it’s better to calculate it ahead of time to see if this option is right for you.

Add the Payment to Your Post-Holiday Monthly Expenses

Use the chart below to see how adding loan payments affects your budget.

It’s worth keeping in mind that installment-loan payments often continue long after the gifts have been opened and the decorations have been put away. 

Check the Full Loan Terms Before Committing 

When it comes to getting a loan, it’s important to review the terms and have a clear understanding of the agreement before making the commitment. You should make sure you are comfortable with the details such as any fees where applicable, payment amount, number of payments, due dates, and the total repayment amount.

How to Stick to Your Holiday Budget While You Shop

The most crucial part of a budget is sticking to it. Here are some actionable things you can do to keep yourself on track:

• Keep the total budget and category caps accessible while shopping
• Record purchases as they happen rather than waiting for statements
• Subtract each purchase from its category balance
• Shop from a predetermined list
• Treat discounts as a way to spend less, not permission to add extra items
• Create a rule for unplanned purchases, such as waiting before buying or moving money from another holiday category first

What to Do When Holiday Expenses Are Higher Than Expected

If you go over the category spending caps, the first thing you should do is stop any additional discretionary spending. Then you should update your budget to rebalance the categories so you don’t breach your overall limit.

Here’s a quick checklist for when you notice you’ve gone over any of the category limits:

1. Update actual spending
2. Identify where the overage occurred
3. Reduce remaining flexible categories
4. Postpone or remove lower-priority purchases
5. Recalculate any remaining shortfall.
6. If considering additional borrowing, you need to reevaluate the monthly payment affordability numbers

Can You Enjoy the Holidays Without Going Into Debt?

Yes, you can enjoy the holidays without stretching your budget. Consider exchanging smaller gifts, making homemade presents, sharing meals, enjoying free local events and traditions, or setting spending limits with family members. Sometimes, the most meaningful holiday memories come from experiences that cost little or nothing at all.

If a personal installment loan is the best option for your needs, plan ahead by budgeting for the monthly payments rather than waiting until an unexpected expense leaves you scrambling for funds.

When Should You Start Budgeting for the Holidays?

Start budgeting for the holidays early to give yourself more leeway to adjust and adapt to changing circumstances. This season, make the budget based on the time and income remaining before the holidays. You can be proactive next season by using this year’s actual totals to estimate expenses early and set aside money over time if the household is able.

FAQs

Is a holiday budget different from a regular monthly budget?

A holiday budget specifically addresses your financial needs for the holiday season.

Should you include small purchases like wrapping paper and shipping in a Christmas budget?

You should include all holiday expenses, no matter how small. Small expenses add up and can sneak up on you later if left unaccounted for.  

Can a personal installment loan be used for holiday expenses?

Yes, a personal installment loan can shore up shortfalls in a holiday budget. It’s important, however, to make sure you account for the added monthly payments in your overall budget.

What happens if you spend less than your holiday budget?

Celebrate that the budget has done its job. You can also use these numbers to help you set next year’s holiday budget.