6 Steps to Creating a Holiday Budget

The holiday season is one of the most joyful times of the year—a chance to celebrate with friends and family. But it's also one of the most expensive. From surprise expenses to gift giving to last-minute splurges, many Americans end the holidays with more debt than they expected. In fact, 36% reported taking on holiday debt last year, with 42% saying they regret spending as much as they did. Of those in debt, 21% expect it to take five months or longer to pay it off, while 20% are only making minimum payments. With overall costs continuing to rise, staying financially grounded is harder than ever.

That's where a holiday budget comes in. A simple plan can help you save money, avoid debt and reduce stress—leaving you with more peace of mind (and more energy) to actually enjoy the season. Here's how.

Step 1: Make a List of Holiday Expenses

Start by listing everyone you plan to shop for, the types of gifts you have in mind and other upcoming seasonal costs. Seeing it all in one place helps you avoid surprises later.

Here are some common expenses to consider:

• Gifts for family and friends (including any that need to be shipped)
• Holiday decor (indoor and outdoor)
• Wrapping supplies: paper, bows, tags, scissors and tape
• Travel costs: gas, tolls, car maintenance, airfare, baggage fees and meals on the road
• Holiday cards and stamps
• Host or hostess gifts
• Supplies for hosting guests: food, extra bedding or higher utility bills
• Tips for service providers: mail carrier, garbage/recycling crew, hairdresser, teachers, bus driver, physical therapist and more
• Outings such as shows, events and get-togethers with friends
• Charitable donations

Step 2: Reflect on the Last Holiday Season

Looking back is one of the best ways to plan ahead. Review your calendar, credit card statements and bank records from last year to spot holiday expenses you may have forgotten. Did you bring a gift to the neighbor's party last year? Splurge on extra decor? Cover more travel costs than expected?

Consider whether you were comfortable with what you spent. If it felt like too much, plan to scale back. If it worked well, use those numbers as a guide for this year's budget. Adding these real figures now can help you avoid surprises later.

Step 3: Figure Out How Much You Can Afford To Spend

It feels great to be generous and give nice gifts, but being realistic about your budget matters. Decide how much you can comfortably spend while still covering your everyday expenses. Once you know that number, work backward to spread it across your holiday expenses and cover everything you need to buy.

While knowing what you spent last year is helpful, don't forget about inflation. The cost of living continues to rise, and small increases add up. For example, if you're sending holiday cards this year, news flash: The price of stamps recently increased from 73 cents to 78 cents. Taking price increases into account can help you create a more accurate budget so you don't have issues at the end of the season.

Finally, set aside a buffer for the unexpected. There's always at least one expense you didn't plan for, which can be easier to handle when you've created a financial cushion.

Step 4: Consider Where You Can Cut Back

Small changes can make a big difference. Look for areas where you can trim spending without losing the holiday spirit:

• Shop thrift stores, dollar stores or holiday sales for gifts, decor and wrapping supplies.
• Use coupons, online deals or bulk purchases to stretch your budget further
• DIY decorations or bake from scratch instead of buying ready-made.
• Turn holiday meals into potlucks to share the cost (and the fun).
• Track airline prices and consider traveling at off-peak times to lower travel expenses

Cutting back in a few areas gives you more room in your budget for the things that matter most.

READ MORE: Top 7 Tips to Rein in Your Holiday Spending

Step 5: Update the List as You Go

Budgeting is not a one-and-done process. As the season unfolds, update your list and adjust costs based on what you actually spend. If you saved money by buying wrapping paper in bulk, you might shift that extra toward new decorations—or keep it as a cash cushion. You may even choose to roll leftovers into a savings account to kick off the new year.

As you update your budget, keep track of which items ended up costing more than you expected. Noting those surprises now can make it easier to plan smarter next holiday season.

Step 6: At the End of the Season, Revisit the List for Next Year

Before the new year begins, review what you actually spent. Separate one-time costs (like updating decorations) from recurring ones (like wrapping paper or gifts for teachers). Use that breakdown to draft a fresh budget so you'll be ahead of the game for next year.

When the next holiday season comes around, pull out that budget and adjust it as needed. Starting with a realistic plan can make it easier to stay on track and avoid financial stress.

The Bottom Line

The holidays should bring joy. By making a list, reflecting on last year, setting a realistic budget, cutting back where you can and updating your plan along the way, you can keep spending under control and avoid the January debt hangover.

A little planning now means more peace of mind later, and more freedom to focus on what really matters: enjoying time with the people you love.

READ MORE: Jump-Start Your Post-Holiday Savings

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