Make the Holidays More Affordable With This 90-Day Budget Reset Guide
The holidays have a way of sneaking up on your bank account. One minute, you’re delighting in the return of pumpkin spice lattes, then the next minute, you’re staring at a month full of holiday gifts, travel, food and parties.
Consumers expect to spend an average of $708 on gifts this year, according to PwC, while households with children expect to spend about $875.
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A 90-day reset gives you time to get ahead of the spending. Here’s how to use the three months leading up to the holidays to find room in your budget, deal with expensive debt and build up cash in order to celebrate how you actually want.
The First 30 Days
Figure out what the holidays will cost by estimating what you expect to spend this year.
Financial experts recommend adding up the big categories first, including gifts, travel, meals, entertainment and any other seasonal expenses you already know are coming. Then, look for places in your existing budget to fill in the gaps.
That may feel harder this year. Consumer prices were already up 3.4% over last year heading into the fall, according to the latest Bureau of Labor Statistics data. Meanwhile, energy costs rose 16.3% and gas prices jumped by nearly 28%.
“If a person knows they will need to spend $2,000 for the holidays, they could decide to cut their spending for discretionary items or for savings,” said Ali Zane, CEO and credit consultant at iMax Credit Repair.
Unused gym memberships, expensive insurance and outdated subscriptions are good places to start.
“Look through your charges from the last month and I’m sure you’ll find ways to save,” Zane said. “You should be doing this every month [and] not just during the holiday season.”
Days 31 to 60
Once you’ve found extra room in your budget, use some of it to reduce expensive debt. Paying down high-interest balances now can leave more of your future income available for holiday spending instead of interest and monthly payments.
That can matter quickly when the average rate on credit card accounts carrying interest is 22.15%, according to the Federal Reserve.
Paul Ferrara, senior wealth counselor at Avenue Investment Management, recommended prioritizing high-interest credit card balances or personal loans before holiday spending begins.
“Planning and saving well ahead of the holidays can help you avoid falling into a cycle of high-interest debt,” Ferrara said. “Start by paying off any existing debt before reaching for your credit card.”
Restructuring debt may also free up cash flow. Zane said he has worked with clients who consolidated multiple credit card balances into a personal loan or moved balances to a 0% APR credit card. In some cases, he said, that improved monthly cash flow by about $200 to $400.
Days 61 to 90
Plenty of shoppers are planning ahead this year. PwC found eight in 10 consumers expect to use some kind of budgeting strategy for the holidays.
By the third month, start moving the money you’ve freed up toward the holiday budget you identified at the beginning of the reset.
“Eliminating a $200 credit card payment and directing that cash flow to a savings account would result in a savings account balance of $600,” Zane said. That gives you a dedicated pool of money for the holiday expenses you already know are coming, instead of forcing those costs into your regular monthly budget at the last minute.
Ferrara said people who already carry credit card debt should be especially careful not to add to those balances during the holidays because doing so can mean paying additional interest and fees.
“The most important thing when entering the holiday season with credit card debt is to make sure you don’t add to that existing debt,” Ferrara said.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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