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 things out of your control.

A holiday budget saves you time and stress. It can also help you avoid a debt hangover in the new year, which is common.

According to the latest NerdWallet holiday shopping survey, some 76% of holiday spenders named at least one factor that might lead to spending more than they planned this holiday season.

Planning plays a big role: Last-minute shopping (16%), buying gifts for more people than originally planned (15%) and not having a budget or tracking spending (13%) are among the top reasons, the survey says.

If you want to avoid holiday 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

Plan before the holiday rush

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.

I start planning the holidays in October. I know that might sound a bit premature, but travel planning, researching holiday events my family wants to attend and party planning take time. If you haven’t started this year, you can start planning now. 

Giving yourself a few weeks (or even a few months) can help you feel more prepared and allow you to adjust your budget accordingly.

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 and 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.

I had a hard time remembering what we got our daughter for Christmas a few years ago, so I pulled out my phone and looked at photos. I could easily see that the number of gifts under our tree has really ramped up over the years. It was a good reminder that we’ve had very happy holidays in the past without dozens of gifts.

» Still carrying last year’s holiday debt? Learn how to pay it off

Create holiday spending categories

Setting up 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.

Thrifting gifts or shopping secondhand can also help you stay in budget, especially if you're able to find big-ticket items. This year I found a Barbie Dreamhouse for my daughter on Facebook Marketplace for $65 (compared with $150 in the store). I sold something from my house for $30 and put that toward the gift, bringing my total cost to $35. 

🎁 Savings tip: Homemade gifts made with supplies you can buy in bulk can be a meaningful and affordable way to thank neighbors, teachers and others in your community. Gift-limit conversations with family and friends can keep your list manageable. Suggest drawing names for gifts to reduce the number you’ll need to buy.

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.

For parents, saving on holiday travel may mean making trade-offs. Our study found that 18% of holiday spenders with children under 18 would be willing to sacrifice some comfort and convenience — think indirect flights and late-night boarding times — to save money, compared with 8% of those without children in this age group.

✈️ Savings tip: Now’s the time to cash in airline rewards points or miles to offset holiday travel costs. Consider flying on non-peak travel days or staying with family or friends instead of a hotel. Pack snacks and meals for road trips to save along the way.

» MORE: Ways to save money on holiday travel

Food and entertainment

Groceries will likely cost more due to all the extra cooking, baking or hosting during this season. There are usually lots of chances for fun outings, such as seeing a local performance of “The Nutcracker” ballet, getting photos with Santa and various holiday parties — and these costs add up quickly.

🥂 Savings tip: To save on food costs, have everyone bring a dish to the holiday dinner rather than cooking it all yourself. Entertainment might be another 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 tickets to 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 have a holiday party to attend.

👗 Savings tip: Check out local consignment shops and online resale groups to find affordable holiday clothes for your kids at a fraction of the retail price. When it comes to decor, my family picks one special item to invest in each year. One year, we bought monogrammed stockings. Another year we bought wreaths for our windows. Choose heirloom pieces to invest in that you’ll pull out with joy each year. 

Charitable donations and tips

Charities ask for more donations during the holidays. Decide early how giving fits into your budget. That way, you can stay on track when requests come in.

Tipping service providers is also a nice gesture, especially if they are people you interact with often, like your house cleaner, delivery driver, babysitter or doorman.

💸 Savings tip: A 20% tip is generous and fairly easy to calculate when there's a bill. But how do you thank someone like a mail carrier or your child’s teacher? Our tipping guide can help you decide when to give cash, choose a gift or simply write a heartfelt note.

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 can save money on travel this year. Perhaps an unexpected home repair means you’ll need to cut down on your gift list to avoid debt.

Leave empty categories in your budget as reminders. You may need them next year. Let your life and goals guide your budget.

» Ready to save? Use our savings goal calculator to see how much to set aside each month

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.

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 this savings tool 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.

Give your holiday savings a dedicated spot

One of the best places to put your holiday savings is in a high-yield savings account with buckets.

With your money safely tucked away, it will continue to grow as the interest adds up.

When the holidays come around, you use the money in the holiday bucket and once it's gone, it's gone. This could help you avoid dipping into your main savings account to make more purchases.