The annual holiday season is now upon us. With Thanksgiving in the rear-view mirror and Christmas just around the corner, there are lots of things to do. There are gifts to buy, parties to plan, and meals to cook. And with every holiday activity come necessary expenses.
Fortunately, it is possible to have a wonderful time during the holiday season without ruining your finances. The key is to work within your existing budget to create a special holiday budget. You are essentially creating a budget within a budget, if that makes sense. This post will explain how to do it. If you are already familiar with the concept of budgeting, you shouldn’t have any difficulty.
Start with What You Know
Every budget starts with what you know. In other words, what are your known expenses and income sources? The things you already know provide a baseline for creating a spending plan. Planning a holiday budget is no different than learning how to budget for the first time. You must have hard numbers to start with.
Write down every source of regular income and add it all up. Now do the same for your known expenses. Consider everything from your weekly grocery bill to your monthly cell phone bill. Every penny you know will be spent over the next several months should be accounted for.
If all works out as intended, you will have more income than you do expenses. Now you can start discussing how much of that extra money can go toward the holidays. Note that if your expenses exceed your income, you are going to have to figure out how to bring in more revenue, spend less, or both.
Determine Needs and Wants
Another important principle of budgeting is to distinguish between needs and wants. For example, you are going to have to eat on Christmas day. Food is not a want; it is in need. Having said that, you may want to spend on a full meal that includes turkey and all the fixings. That’s okay if your budget can support it.
The idea here is to use the extra money in your budget to cover your needs first. Any money left over can be put toward wants. That is how budgeting works. If you don’t have enough money to cover your wants, be cautious with credit. Any credit you use represents money that will eventually have to be spent.
Look for Ways to Save
The final principle of holiday budget planning is to look for ways to save before you start spending. Here’s an example: maybe you don’t have a lot of money left over for gifts after you account for your regular bills and your holiday needs. Gifts are considered a want rather than a need. Perhaps you can save on gift-giving by being creative.
Instead of buying your son brand-new hockey nets from the sporting goods store, see if you can find some scrap lumber and build them yourself. Rather than spending a lot of money on jewelry you and your spouse cannot afford, arrange to have the kids sent to grandma’s house for a weekend so that you can have the place to yourself.
Holiday budgeting is all about figuring out how much you can realistically afford and then finding creative ways to work within that number. As always, be very cautious about running up credit card debt for temporary holiday pleasures. It is normal to want to do those special things that make the holidays what they are. But none of it is worth incurring crushing debt over.