The holidays will be here before we know it. It’s a magical time of beautiful decorations and lights, gifts, parties... and money stress. Yes, you read that right. Almost half of us stress out about money during the holidays.
It makes complete sense. We take on a lot of extra expenses this time of year. There are expenses that come to mind right away like gifts, vacations, and hosting parties, but there are also expenses that are less obvious. We might purchase a sparkly dress for the office holiday party, take more Ubers than we normally do, or forget that we always give a cash gift to the mail person.
The crazy part is that while we know we’re going to spend more this time of year, very few people plan for it. Even if we set a budget, we’re probably not putting money aside in advance. That means we end up stressing out over how to make these expenses work and most Americans end up with more credit card debt.
Then we’re playing catch up going into the New Year, which makes it even more difficult to succeed in our financial goals.
The good news is, we can plan for our holiday expenses, and the sooner we do, the less pain we’ll feel financially.
Here are 7 easy steps to a financially stress-free holiday season:1. What’s most important to you?
Take a step back and think about what’s most important to you about the holidays. What are your favorite holiday memories? What made those memories special? These are the things you’ll want to prioritize spending money on this holiday season. When you prioritize what’s important and let go of the rest, a magical thing happens. Your lifestyle ends up feeling bigger and more meaningful, yet you end up saving more money.2. Run the numbers
What do you plan to spend money on this year? You can start with the things that are most important (from step #1 above), but there are probably other expenses to plan for. Make a list. For example, you may want to buy gifts, travel, host a party, account for extra dining out, purchase party clothes, or pay for additional transportation.
Get specific and add up the numbers. For example, if you listed gifts above, how many gifts do you plan to buy? What will you plan to spend on each gift? If you decide to buy five gifts and plan to spend $50 per gift, that’s $250 in total spending on gifts. You can make a spending estimate for each item on your list.3. Make it fabulously frugal
Is there any way to reduce the total above while maintaining the quality or making it better? Let’s continue with the gift example. Instead of getting five gifts, you might decide to do a Secret Santa where each person involved gets one person a $50 gift. This adds some excitement to the process. Now you’ve reduced your total spend from $250 to $50 in the gifts category.
Next you want to make the space for your holiday fund. I highly recommend creating a separate savings account for it so that it’s clear that this money is specifically for your holiday fund. I’m a big fan of using an online savings account so you can keep the fund out of sight and out of mind - in its own bucket - while also earning some interest. You can use this method for other larger, less frequent expenses as well.
Then, it’s time to account for your income. How many paychecks do you have from now until you plan to make your holiday purchases? If you don’t get a regular paycheck, break it up by time. How many weeks or months do you have until you plan to make the purchases?
It’s important to account for any expenses you plan to make in advance. For example, you may prefer to buy gifts the month before. That’s when you’ll want to have the money there and waiting for you.
From there, you can calculate it out. If you plan to spend $500 total on the holidays and you have five paychecks until you want to start spending the money, you will want to transfer $100 per paycheck into your holiday fund.
If you’re not sure how to find $100 per paycheck, here are six steps to save $1,000 this month.6. Make it automatic
Set this transfer up to be automatic. Automation ensures that we don’t have to depend on willpower or our memory to transfer the money over each paycheck. This gives us peace of mind because we can feel confident it’s going to happen.
Schedule the calculated per paycheck or per week amount to transfer to your holiday fund automatically. Continuing with our example above, you’d set up an automatic transfer for $100 per paycheck to go to your holiday fund. Then the cash will be there waiting there for you when it’s time to start your holiday spending. You can transfer it over in advance or put expenses on your credit card and pay them off immediately using the funds from your holiday fund.7. Plan ahead for next year.
The earlier we start planning for the holidays, the smaller our transfers can be and the less “pain” we’ll feel per paycheck. When we aren’t playing catch up after the holidays, we can start planning for next year and that will reduce our financial stress even more.
Let’s say you start right after the holidays and have 24 paychecks to put aside $500 for the holidays next year. You’d only have to transfer $21 per paycheck to your holiday fund to have $500 saved in time for next year.In Conclusion
Taking a step back and mapping out a conscious and intentional plan for the holidays allows us to prioritize what’s most important while decreasing our financial stress. If you walk through each of these seven steps, you’ll know exactly how to plan for your holiday expenses this year and get started early for the next.
Then get a head start on your New Year’s goals with our free 48 Hour Personal Finance Financial Makeover.
For more tips on budgeting your money, check out The 30-Day Money Cleanse>>