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5 Steps to Creating a Fool-Proof Holiday Budget

11/19/2018 - Megan Nye

Planning to use credit to cover your holiday expenses? Watch out. Last holiday season, plenty of Americans dug themselves into gift-giving trouble with an average debt of $1,054. And roughly half of those consumers anticipate that they’ll be paying off their balance — with interest — beyond Easter!

The solution is surprisingly simple: Ditch the plastic and switch to cash for this year’s holiday spending.Holiday Shopping List

Ready to conquer this year’s expenses without the post-holiday spending hangover? Try our easy, five-step process for building a fool-proof, cash budget.

1. Use cash to save

The beauty of paying with cash is that you can spend only what you have in hand. But actually having the cash available requires a bit of planning upfront. And the sooner you start saving, the better.

Prep for success with a super-simple system. Create a designated area, like a large jar, for collecting the cash you’re dedicating to holiday shopping. Then brainstorm creative ways to fill it up. Here are a few ideas to get you started:

  • Commit to saving a specific sum of money — maybe $20 — each week.
  • Empty your pockets of singles and loose change into your money jar every day.
  • Reduce the little luxuries in your life — coffee runs, manicures, name-brand products, extra T.V. channels — and stash that cash instead.
  • Sell some stuff that’s cluttering your home but that another person would love to own.
  • Earn cash from a small side job like baby-sitting, shoveling sidewalks, or walking dogs.
  • Save some (or all) of your Holiday bonus from work.

2. Plan your spending categories

Often, holiday spending gets out of control simply because people forget about the sheer number of costs they can incur. Think about it: You’ve got gifts for family, friends, maybe teachers and service providers. Plus, you might be hosting a holiday gathering, having an office Secret Santa, traveling to see family or friends, sending holiday cards, shipping presents, purchasing holiday décor, and so on.

Creating a successful budget requires you to be proactive by getting all of it on your radar upfront. So sit down with a stack of envelopes. What are the types of costs you need to (or want to) cover this year? Write each one on a separate envelope.

Make sure your categories are specific, so you don’t miss anything. Think beyond general costs for travel, and drill down to expenses for airfare, lodging, and meals. And also set aside an envelope for each person on your gift list.

3. Make your budget tangible

Traditional budgeting involves pen and paper alongside a calculator. But handling actual cash allows you to make a tangible budget. And using real money makes it that much easier for you to see your spending choices and fine-tune your budget.

You’re ready at this point to divvy up the pot of cash you’ve accumulated during the year. Start by spreading your customized envelopes across a table. Then allocate money to each of your spending categories, according to their importance to you.

If you’re lucky, you’ll discover you have more than enough cash to accomplish all your spending goals. But, if you’re like most people, you’ll need to make some choices — spend less on your holiday get-together, limit your gift list, or spend less per person.

Play with your options until you’re happy with the distribution of cash across your envelope budget. Then write the amount each envelope contains right on the outside.

4. Get ready to shop

Now it’s time to have some fun! Think carefully about what each gift recipient enjoys, and brainstorm gift ideas that land in your budget. (In some cases, your loved one may love receiving the cash itself!)

Flip through store ads, clip coupons, and visit discount stores to see where you can maximize your money. Use savings apps or deal sites to make comparison shopping simple. Don’t forget to consider hidden costs like taxes and shipping fees, where applicable.

Remember: The only money you can spend on each category or gift recipient is the cash in your envelope. Of course, if you have leftover money in one envelope, feel free to add it to another envelope for additional spending money.

Of course, in today’s world of online and mobile shopping, the best deals may not always be local. If using your cash at a physical store is impossible, or you could save a lot by buying remote, deposit the cash you plan to spend online and then either use your debit card tied to that account to make the purchase - tapping the cash you deposited - or pay with a credit card and use your bank’s bill pay system to make a matching payment to that credit account.

5. Keep tabs on your cash

Juggling multiple spending priorities can make holiday planning complicated. Using cash envelopes vastly simplifies the process, but it’s important to keep tabs on what’s going where.

Make yourself a to-do list for all your holiday spending, and cross off each activity when you’ve completed it. Keep a running ledger of how much you’ve budgeted for each category or person relative to how much you wind up spending on each.

Tracking your money in this fashion will keep you on target while allowing you to see how much shopping and money are left. As an added bonus, this approach will also serve as an invaluable resource in planning next year’s spending.

This holiday season, skip the annual tradition of dreading that January credit card bill. Instead, use the power of cash to your advantage. With a few simple steps, you can craft a budget that’ll fill your holiday with magic and start your new year on the right financial foot.

Megan Nye
Megan Nye is a personal finance freelance writer who crafts content for businesses, blogs, and publications. Her articles transform even complex money matters into easy-to-understand and actionable information. Ms. Nye’s writing has been featured by Business Insider, U.S. News & World Report, Credit Karma, Citi, Wells Fargo, Lending Tree, and Northwestern Mutual.