Nextwave Finance

Setting a Holiday Budget

November 26th, 2007 | by rachel |

For longer than I would like to admit, my holiday budgets have consisted of buying gifts now and figuring out how to pay for them later!  I have always STARTED my holiday shopping with specific spending limits in mind but I have not stayed within those limits very well.  Even the most disciplined and conscientious money managers can fall behind during the holiday season.  Let’s face it, the period between mid-November and the New Year is full of holiday events, celebrations, and EXPENSES!  A “holiday budget” is vital for handling those expenditures effectively and responsibly.  These steps will explain exactly HOW to go about determining a holiday budget that fits any financial situation.Waiting too long to plan for the holidays can put you in the dangerous position of setting a budget WHILE you are spending money that should be allocated to the budget.  Simply put, doing it during the holiday season will make it a much more difficult process.  It will carry more emotion than it needs to and there will be a temptation to get caught up in the season and spend more than you should.  To avoid these dangers, start planning the holiday budget well in advance of the time that you will start making holiday expenditures.

One reason for using a holiday budget is to make sure that everything is covered that needs to be.  Spend some time brainstorming about EVERY POSSIBLE EXPENSE that is associated with the holidays.  If you have records from previous years, they can provide an excellent place to start.   Don’t forget to include all gifts (even the little ones), parties, shows, contributions to group gifts, clothing purchases, babysitters, travel costs, etc.  You get the idea!  This is one time when it’s ok to go “overboard”.  It is much better to overestimate how much money you will need rather than underestimate costs.

After brainstorming, certain types of expenditures should be obvious.  Group the similar expenses into appropriate spending categories to make planning easier.  Categories should be somewhat broad so that you don’t end up with too many categories to manage comfortably (i.e. gifts, entertainment, travel, food).  After deciding on the categories, investigate prices and determine a reasonable, realistic amount of money to spend in each category. 

Perhaps the most important part of the holiday budget is having it recorded somewhere.  Especially if this is a budget that you expect your entire family to follow, it must be written down!  Writing it down helps you remember the details; it provides a neutral point of reference; and it gives you a means of measuring success.  When the holidays are over, you can evaluate the budget to determine whether it was successful or not.

So far, so good?  If you have made it this far, this step should be no problem!  If you are creating a budget that others will participate in, it is absolutely necessary (and desirable) that everyone involved in living within the budget have some input in creating the budget.  That really should go without saying.  Once the decisions are made and everything is recorded on paper, EVERYONE needs to agree to the budget (including how and when money is spent, how and when money is distributed, etc.) as well as make a commitment to fulfill their responsibilities in the budget (monitoring, contributing to funding, participating in discussions, etc.).

The main part of this (or any budget) is the plan for funding it.  It’s great to get it all on paper, but none of it works unless there is (or will be) money to back it up.  When creating the budget, specify where the money is coming from to actually pay for the things listed in the spending categories.

Will money be allocated from an existing budget to cover expenses?

Will additional income be required to cover holiday expenses? If so, who will contribute that additional income?

Will money from the holiday budget be spent all at once or will it be spread over several months?

Will holiday budget money be kept in a separate account?

 As closely as possible, define all the details necessary so that noone is confused about how the budget will operate.  Don’t forget to include the answers to all these questions in the written budget so you can use it for reference!

Finally, use the budget.  When the holidays are over and your holiday spending is finished for this year, take time to evaluate the budget and make adjustments for next year.  Make notes to help you remember and include input from all the people that participated.  Find out what worked and what didn’t and adjust accordingly.  Also, take into consideration any possible “personnel” changes that may be in effect by the same time next year (children leaving home, children having part-time jobs, job and income changes, etc.)

Although it will have taken some work, the holidays will be much more enjoyable for everyone when they come in “under budget”!