Prepping Your Holiday Budget in Four Easy Steps

I know you don’t want to talk about this yet, but too bad: it’s time to start thinking about the holidays.

As soon as the kids go back to school and the temperature starts to drop the lightspeed race to the end of the year begins. If you're not prepared, you're about to have a very stressful few months.

Thankfully you don’t need to start decorating your house or buying presents quite yet. You do, however, need to start thinking about your budget.

In an ideal world your holiday expenses have been sitting there, on your budget, all accounted for since the beginning of the year. That’s ideal, but not exactly reasonable. For most people, holiday spending isn’t about what you’ve planned for, but what circumstances will allow.

That doesn’t mean you throw your hands up in the air and give up. Instead, you take the circumstances you’ve been dealt and use them to create a plan that gets you through the holidays, budget and sanity intact. Here's how.

Analyze your current spending

• How much do you have in savings?
• What are your fixed expenses?
• Where can you potentially make cuts?

It would be great if you could start from the other end of the equation and decide how much money you’re going to spend first, but that’s the road to debt, unfortunately. Instead, we begin at a significantly less romantic starting point: how much money can you spend?

This requires understanding what you’re currently spending and what, if anything, is left over. You can be as detailed in your approach as you’d like, but if you’re happy with just a general idea of what your spending has looked like, pull out all of your banking statements for the year so far. Look at how much you’ve spent each month, how much you’ve earned/deposited each month, and what’s been left over. This will give you a very rough idea of what the last few months of the year would look like if you didn’t add any holiday spending.

Prioritize your goals

• How does holiday spending stack up against your other financial goals?
• Do you have money saved for the holidays?
• Are you willing to go into debt for your holiday spending?

Understanding your current spending tells you what you can afford without making any significant changes. If each month your earnings out pace your spending by only $50, you could essentially expect to be able to spend about $200 on the holidays without dipping into savings, going into debt, or making any extra effort to curb your spending in other areas.

Now you decide what you want from the holidays and what you’re willing to do to achieve those ends. If you know that you’re going to spend more than your current spending patterns will allow, then you may need to make changes to the way you earn or spend money. And if you're planning on borrowing money, you'll need to think of how you'll repay that debt in the new year.

If, on the other hand, your priority is to only spend what your current budget will allow, without making changes, using savings, or taking on debt, then you’re all set.

Connect budget cuts to spending goals

• What low priority expenses can you cut to support your holiday spending?
• How much will those cuts create in available funds for the holidays?

If you want to spend more money than your budget would normally leave available, you need to find the money somewhere. If you’ve been saving for just this occasion, great! If you haven’t, however, you need to choose between creating debt and reducing spending.

Creating debt is easier in the immediate, but could potentially throw your budget off for months or even years. Whenever possible, avoid adding debt.

Instead, consider all of your variable expenses. Some will be more fluid than others. Where can you make cuts?

Cutting your spending can be difficult. In this case it may help to make a direct correlation between the money you’re saving and what it’s going to be spent on. If you cut your grocery bill one week by $20, for instance, by buying all generic, with no meat and no pre-packaged snacks, you can connect that $20 directly to a present you intend to buy for a loved one.

Set a schedule

• How long will you need to make cuts to support your holiday spending?
• How quickly do you plan to repay any new debts?

If your plan is to reduce your normal week-to-week spending in order to save money for holiday spending, be specific and set a timeline. Set weekly savings goals and avoid falling behind on your plan.

It’s normal to get discouraged, and if you start falling behind it might seem easier to just give up on saving and put it all on your credit card. But if you can put together a savings plan through the holidays (and beyond) and make it stick, you’ll have the holiday experience you want and you won’t be left paying for it years later.

If money feels too tight all year long, debt payments may be the culprit. MMI offers free financial analysis 24/7, online and over the phone. Let's us help you figure out a budget and find the best debt repayment option for your situation and goals.