Ask an Expert: How Best to Budget for the Holidays

With Christmas shopping, holiday meals, traveling, and more—the season can be a very trying time when it comes to finances. Nicole McAninch, PhD, CFLE, Clinical Associate Professor of Child and Family Studies in Baylor University's Department of Human Sciences and Design, engages in research surrounding family resource management, as well as individual and household finances. Below, she shares valuable advice on how to financially navigate the holiday season.

What can individuals and families do to create a budget for the holidays?

I think the main thing that we can do is be intentional. Christmas comes around every year, so it’s best to incorporate these once-a-year expenses into our monthly budget when possible.

When thinking about budgeting for the holidays—before even thinking about a dollar amount—I first ask, what is your goal for the Christmas season? When looking at our values around this time, we can get a clear picture as to where we want our money to go. Are we prioritizing travel and experiences? Are we focusing on presents and food? What are we hoping to achieve as a part of the Christmas celebration? I remember one of my undergraduate professors at Baylor, Dr. David Sherwood, sharing a phrase that really embodies this: “You can’t maximize all values simultaneously.” While Christmas can be a magical time, it is really important to know your financial boundaries. It’s important to budget toward things that are meaningful for you, and then you're going to actually have a great experience. 

"I first ask, what is your goal for the Christmas season? When looking at our values around this time, we can get a clear picture as to where we want our money to go."

Once priorities have been set, another thing I encourage is to make financial conversations less about “we can't afford that.” Instead, I find it helpful to say, “our budget is for this.” Make it about what you are choosing to prioritize, as opposed to not being able to afford something. For example, if you have children and they're trying to understand why they can't go on an exciting outing, or why they can't have every item asked for this Christmas, it’s helpful for them to understand what you're working towards. Approaching it this way helps reinforce family goals and values, while avoiding responses that make anyone in the family feel anxious or guilty about a family’s financial situation. 

I typically encourage individuals and families to set aside money throughout the year—whether that's setting aside in a monthly budget or working a side gig for a period of time in order to prepare for the holidays—as opposed to charging it to a credit card. Often, when you use a credit card, it can be really easy to justify spending above what was originally planned. So, whether you can save every month, or whether you take on a side hustle, both are usually a good strategy.

How can we ensure we spend within our budget?

One of the things that can be helpful is for individuals, couples, and families is to try to get a sense of what they have been spending in the past. While every year can be different, I find that while we think we know what we spend on experiences, when we start to study the line items, we have a moment of WOW. A lot of times, when families are busting their budget, it's often because they haven’t been realistic about how much they're actually spending. So, if they want to reduce that, they must be mindful of what trends they tend to be spending money on. This is something I do with my students when they take the class—they create a spending notebook and we talk about what's typical spending and what's atypical spending for them. What I often find is that they start to talk about things that are atypical—but there is a pattern of it every single week—showing that it is actually typical spending. 

"While every year can be different, I find that while we think we know what we spend on experiences, when we start to study the line items, we have a moment of WOW."

Are there any resources you recommend for budget creation and management?

There are a variety of different apps that you can use to help create a budget and track your spending. Also, some financial institutions already have budgeting tools embedded into their app. This can be a good tool to keep track of spending, but I do encourage looking beyond just percentages—look at days of the week, times of the week—where and when are you tending to spend more, particularly during the holidays. For people just starting out in budgeting, Goodbudget can be a great place to start. For people who know they tend to overspend, PocketGuard can be a helpful tool in setting financial boundaries. And for those wanting to step up their budgeting game and are willing to invest in a high-level app, YNAB (You Need a Budget) is a highly rated app.

Do you have any tips you would give with the upcoming season?

One tip, which has become sort of a trend, is loud budgeting. Loud budgeting is all about being loud and proud with your budget. Let your family and friends know that you are choosing not to spend due to prior financial decisions and chosen priorities. For example, if eating out is not a part of your budget for this month but your friends want to go out to dinner, you can recommend getting together at your house instead. It's really important to start creating accountability and desensitizing this stigma that surrounds discussing budgets with others. 

Is there anything else you’d like to share?

The Christmas season can be such a consumer-driven time—and I think it’s important to incorporate generosity as a part of that. People who tend to engage in generosity tend to have a healthier relationship with their money, and it tends to have less of a hold on them. The Bible talks about this, too, and from a faith-based perspective, it really aligns beautifully. The research is very clear that people who have an open heart and an open palm when it comes to finances and being generous in that way, have a better relationship with money in general. If a family can't do that financially, another option is to be generous with their time. The holidays require a lot of resources, finances being just a part of that, so giving of your time is a really good way to help balance the feeling that the holidays are all about consumption, purchasing, and debt. 

"The research is very clear that people who have an open heart and an open palm when it comes to finances and being generous in that way, have a better relationship with money in general."