As the holidays approach, even the most financially disciplined families can go off track with their spending. The cost of gifts, decorations, travel, and entertainment adds up quickly, and it’s easy to justify it as part of the season of giving until you get the bill in January. If you’re worried about your finances, cutting out all purchases isn’t the answer. Instead, understand how to balance your “needs, “wants,” and in-betweens in your holiday budgeting. This way, you can enjoy the season without sacrificing your happiness or financial security.
What Are Your Spending Needs and Wants?
Needs are the essentials that keep you safe, healthy, and secure. They include housing, food, basic utilities, healthcare, transportation for work and family obligations, and essential clothing. These costs are paid first from your income or savings.
Wants are all the extras that provide comfort, joy, or convenience but aren’t strictly necessary. Going out for dinner, entertainment, vacations, subscriptions, and designer goods fall into this category.
When you’re trying to save money or pay off debt, your wants are where you can cut expenses. However, many people fall into the trap of thinking their wants are needs. For example, you might need a new phone, car, or clothing, but you want the more expensive brand when a cheaper one would do as well. Gifts and holiday costs can also fall prey to this mindset. You need to buy gifts and food, but you spend on more costly items that you struggle to afford.
Do You Have to Stop Spending for the Holidays?
No one wants to go through life avoiding all unnecessary spending, especially during the holidays. Most holiday-related costs are wants, but they also bring joy to you and others. You don’t want to eliminate everything, but you do want to manage your money effectively, so your giving doesn’t come at the expense of your financial security.
How Can You Avoid Overspending?
If you haven’t already set a holiday budget, now’s the time. Start here:
- Track your expenses. Review your bills and receipts to determine where your money is going every month. Also, look at your holiday expenses last year and consider how they affected your finances this year.
- Categorize each expense. Identify whether payments were for needs or wants.
- Determine your income. Check your paycheck and/or bank deposits before you take money out for personal use, so you know exactly what you have.
- Create a budget. Allocate funds first to your needs to estimate how much you can comfortably spend on wants without dipping into savings or adding new debt.
- Prioritize your holiday wants. Decide what’s most meaningful and scale back on the rest to fit your budget.
- Consider how you can save. For example, host potluck gatherings, set price limits for gifts, draw names in larger families, gift a shared activity, create homemade presents, and monitor prices to get the best deals.
- Track as you go. A quick weekly check-in helps you stay mindful of your spending, make adjustments if needed, and avoid surprise credit card bills next year.
With the right holiday budgeting, you don’t have to say no to all your spending or feel guilty for buying gifts and having parties.
If you or a loved one struggles to keep spending in check or stay organized with daily finances, I can help. As a daily money manager, I work with individuals and families to budget, track expenses, pay bills on time, and manage routine financial tasks. Contact me for a free consultation.
