How to Build a Holiday Budget That Works Every Year

Even though the holiday season rolls around at the same time each year, unexpected expenses can catch you —and your wallet — off guard. Creating a holiday budget can help you save money on typical holiday costs, such as gifting, hosting and traveling, while also leaving room for the unexpected.

A holiday budget gives you a solid foundation from the start by saving time and stress — not to mention also preventing a debt hangover in the new year. Some 28% of 2023 holiday shoppers who used a credit card to pay for gifts still haven’t paid off their balances, according to a NerdWallet holiday shopping survey.

If you want to avoid holiday spending debt but feel overwhelmed about building a budget just for this season, don’t worry — we’ve got tips to simplify the process and make it work for you, year after year.

»LEARN: How to budget money in 5 steps

Start planning early

Sit down and make a list of your holiday priorities. Maybe you host an annual cookie decorating party or visit family out of town every year.

Your list should include things that are nonnegotiable for you, followed by holiday costs that you would be willing to cut if needed. Refreshing your priorities each year can help you avoid disappointment and help align your spending with your values, goals and season of life.

Review last year's spending

Pull up your bank and credit card statements to see what you spent money on last holiday season. Ask yourself:

• Were you happy with your spending? 

• Are there spending categories that no longer serve you? 

• Has anything changed in your budget between this year or last, like a job loss or a new child? 

Now’s the time to account for those changes.

If last year’s spending aligns with this year’s budget, those numbers might offer some good parameters moving forward. If you overspent, now’s the time to make things right by setting a more realistic budget and sticking to it.

Create holiday spending categories

Creating holiday-specific categories you can return to each year will help you prioritize your spending and make it more predictable. Here are some common holiday costs:

Gifts

The holiday season is a time of giving. While narrowing down your gift list can be a challenge, it should be your first step. Your gifting budget should also include any gift wrapping supplies, as well as shipping costs for gifts that need to be mailed.

Savings tip: Gifts are likely to make up a big portion of your holiday budget, so finding ways to save can create some breathing room. Consider making your own gifts — using supplies you can buy in bulk — to give something meaningful to neighbors, teachers and others in your community. Suggest that friends and family draw names for gifts to reduce the number you’ll need to buy. Sticking to a gift list with price limits for each person, cashing in the credit card rewards or points you’ve earned, and paying with unused gift cards are other ways to save.

Holiday travel

Some people spend the holidays visiting friends and family, but not everyone lives nearby. Account for gas or tolls, airfare and bag fees, as well as hotel stays — and make sure to budget for food while you travel.

If you’re flying, make a plan for how to get gifts to and from your final destination. Bringing an extra duffel bag to check or shipping gifts home are some options, but either will require an extra line item in your budget.

Savings tip: Now’s the time to cash in airline rewards points or miles to offset holiday travel costs. Save money on airfare by driving, if you can, and pack snacks and meals to save along the way. Consider shipping gifts to your destination rather than paying extra to carry them on your flight.

»MORE: Ways to save money on holiday travel

Food and entertainment

Your grocery bill might be higher than usual this time of year, due to extra cooking, baking or hosting. There are also usually lots of opportunities for fun outings, such as seeing a local performance of “The Nutcracker” ballet, getting photos with Santa and various holiday parties.

Savings tip: Entertainment might be a place where you can save. Checking out festive decorations in your town, joining a community menorah lighting or having an at-home movie night don’t cost a thing. Your local public library might also offer free events.

Holiday decor and attire

This category includes things such as the cost for new decorations or new clothes. You might need to put a little extra money in this category if you want to update or add to your home decor or your wardrobe — especially if you have kids who outgrew last year's holiday outfits or you need a new ugly sweater for a holiday party.

Savings tip: Check out your local consignment shop to find affordable holiday clothes for your kids at a fraction of the retail price. When it comes to decor, pick one special item to invest in this year.

Charitable donations and tips

Nonprofits and charities kick giving campaigns into high gear during the holiday season, so it’s likely you’ll encounter people asking for donations. Establishing how charitable giving fits into your budget at the outset will keep you on track in the face of many giving opportunities.

Tipping service providers is also a nice gesture, especially if they are people you interact with frequently (such as a delivery driver, babysitter or doorkeeper).

Savings tip: A 20% tip is generous and fairly easy to calculate. But it can get more complicated if you’re tipping someone who provides a free service, such as a mail carrier. If you’re unsure how much to tip, check out our tipping guide.

Determine how much to save for each category

Use the figures you calculated from reviewing last year’s spending to set limits for each category. Not all categories will need to be funded the same way each year — or at all — depending on your circumstances.

Maybe you travel to your in-laws’ for the holidays only every other year, so you don’t need to put any money in the travel category this year. Perhaps an unexpected home repair means you’ll need to cut down on your gift list to avoid debt.

Keep unfunded categories as placeholders to remind yourself about potential expenses when you revisit your holiday budget next year. Let your circumstances and priorities guide your budget.

»Looking to budget beyond the holidays? A 50-30-20 budget might be for you.

Fund your budget and save over time

Now that you’ve set up your budget categories and decided how much you want to save, it’s time to actually fund your budget and find a place to keep your savings so you can track your progress.

If you find that your budget is slimmer than you want it to be, it might be time to reevaluate how you save for next year.

In 2025, start by giving yourself more time. A longer timeline will put less strain on your budget because you’ll have more flexibility in how much you need to save each week or month.

Starting early will also allow you to take better advantage of sales throughout the year, and you won’t have to fight Black Friday crowds for the items you’re looking for. With more time to browse, you can watch secondhand marketplaces for toys or other items in good condition — not to mention there’s less competition, and you won’t feel pressure to buy something just because the clock is ticking.

Set up a sinking fund

A sinking fund is a way to gradually save for planned expenses in smaller chunks over time. This is a perfect tool for holiday spending because the holidays are predictable (they come at the same time each year), and it allows you to keep track of your progress. You can either set a target deadline to hit your savings goal or use your sinking fund to pay for things such as holiday gifts as you buy them throughout the year.

Put your money in a high-yield savings account

One of the best places to put your holiday savings is in a high-yield savings account. This keeps holiday savings separate from your personal savings account, which may be tempting to dip into for another purchase since it’s easy to access. With your money safely tucked away, it will continue to grow as the interest adds up.