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4 Steps to Budget for Christmas

Budgeting with Personal Finance Software


Most people spend hundreds of dollars or more on holiday gifts every year. Add in the cost of clothes, food, alcohol and other holiday necessities, and you have a major financial expense on your hands every year. You can reduce your spending for Christmas by using personal finance software along with these tips for budgeting for the holidays every year.

In case you're reading this when it's too late in the year to use a budget to save for the cost of festivities, I've included money saving ideas and advice to make the holidays more financially manageable right now.

You will need personal finance software with a budgeting feature, and if you aren't using this software yet, try a frugal selection from this list of free personal finance software, or check the links at the bottom of this page for software options that are priced right.

1. Start Tracking Christmas Spending

Christmas fun with friends and family.
Getty Images / Ulrik Tofte
The first step to starting a Christmas budget is to open your personal finance software and create a spending category called 'Christmas', 'Holidays', or any other term that's meaningful. This spending category will be used to record expenses that are related to the holiday in the software's account registers. Usually, categories are created in the budgeting tool in the software, but you can also often create categories on the fly as you enter receipts in registers. Check the documentation under Help if you're not sure how to do this.

If you really go all out for Christmas or other holidays with elaborate celebrations, consider using subcategories to budget individually for food, decorating, teacher gifts and anything else you typically purchase. It's easier to determine specific areas you can cut back on if you need to when you use subcategories, which helps with spending less next year.

When you make holiday purchases, record them in the software's account register using the category or categories you've created. You will need to use split transactions when you buy items from different budget categories, like food and decorations, at one store.

2. Analyze Spending

Christmas spending can take a toll on your finances/
Getty / Jupiterimages
Now that the budget is set up, it goes without saying that you need to stick to the plan. But, the next step to effectively budgeting for Christmas happens after the holiday is over.

After you've entered all Christmas expenses in the personal finance software, run a budget report or a category report that shows planned vs. actual spending. If you're not sure how to do this, check the Help resources in your software.

The report should be set up with only the Christmas or holiday spending categories selected so you can focus on those expenses. Don't be discouraged if you need to make some adjustments for next year, this is common.

3. Budgeting for Christmas

As holiday parties are come to an end, take time to relax and set financial goals for a new year.
Getty Images / David Ellis
Now that you're aware of what the Christmas holidays cost you this year, set up next year's holiday budget in your personal finance software.

Whether you blew your budget or have some cash left over, you need to make some adjustments to the budget for next year. If you overspent, consider whether your budgeted amounts are realistic, or take a look at ways to save money on the holiday next year in Step 4 and come up with a plan to avoid over spending. If you came out under budget, congratulations! Depending on how much less you spent compared to the budget, either adjust your planned numbers down a notch or just leave them as they are in anticipation of higher prices next year.

You can account for rising prices next year by multiplying this year's spending by 1-1.5%, then enter the amount you plan to spend next Christmas into the budget setup in your financial software.

To prepare financially for next year's holiday costs, deposit a monthly amount into a savings account that is designated for the holiday so you have the funds available next year. ING Direct has a savings account that lets you create sub-accounts so you know how your designated holiday savings are growing throughout the year.

4. Saving Money on the Holidays

Save up all year round for Christmas.
Getty Images / Rosemary Calvert
Learn how to spend less for and save money on Christmas and holiday celebrations with these money-saving ideas.

The amount you've been spending on Christmas may be unpleasantly surprising. Here are tips to reduce spending next year and save money for years to come:

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