How To Spend: Budget For Christmas

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This Christmas card I made when I was young reminds us the holidays don’t need to be expensive to be merry.

Here in the United States, families generally spend a significant portion of their assets during the Christmas holidays. For families whose monthly income for December is the same or less than average this can cause significant budget shortfalls and sometimes lead families into credit card debt.

The problem is so pronounced that I have heard companies who pay 14 installments over 12 months, doubling June to pay for summer vacations and December to pay for Christmas spending. Other companies who pay end of year bonuses find the entire bonus being used to pay for Christmas spending.

If no one else is anticipating the additional spending for you, then you will have to budget accordingly.

Budgeting categories differ among families according to whatever makes sense. For me, I separate the category “Gifts” from the category “Entertainment and Recreational Expenses.”

Within the category “Gifts,” it may even be helpful to separate “Christmas” from all your other gifts, such as “Birthdays.” Depending on the size of your holiday family, Christmas gifts may very well represent as many gifts as all the gifts from rest of the year.

For a family of four to set a Christmas gift-giving budget of 4% of the household’s annual budget means that during the month of December they might spend 48% of their month’s take home pay on Christmas gifts that month.

Whatever you decide to spend, in order to maintain the discipline of saving every month in anticipation, you may want to take the steps to automate your savings by leaving your Christmas budget in your long-term savings account until December approaches. Then, you can transfer your Christmas savings to your checking account in anticipation of the Christmas Season.

A third of families spend $1,000 or more on gifts, often on a tight budget. It is easy to spend more than your family can afford at Christmas. Christmas should not be an occasion to ruin your family’s finances. Much of the best parts of the Christmas holiday celebrations can be done without spending any money. Careful planning and honest conversations can help reduce the cost and keep Christmas from ruining your finances.

Start by setting a budget that you can afford. Knowing what end you have in mind will allow you to implement the right number of cost saving measures. A budget also ensures that you are containing the costs of Christmas to what fits within your income.

There are many ways to save money at Christmas.

Limit the number of people to whom you give gifts. It is best to be honest with the reasoning. Just say, “We are having trouble affording Christmas and can’t afford to give gifts to everyone.” Some especially large families have this conversation collectively and decide to rotate who buys each family member a present similar to a Secret Santa. For non-family members, you could make a batch of homemade goods as gifts to cut costs. Kate Nesi estimates that the cost of four dozen chocolate chip cookies might be $4.48 or $0.09 per cookie. Sharing a dozen cookies might reduce the cost of a gift from $25 to $1.12. As a nice side effect, your gift of cookies might be more appreciated.

Give gifts that are handmade rather than store bought. Handmade gifts can be some of the most cherished and also some of the least expensive. This is especially helpful for grandparents who are on a tight retirement budget. Knitting a beautiful cap takes time and love. Writing down family stories could provide the only record of such events. One of my treasured gifts is a book of the poetry my grandfather wrote which was collected by my mother after his death.

Be frugal in your gift wrapping. When I was young, I used the Washington Post’s comic section to wrap all my presents. It cost nothing. I also made homemade cards such as the one featured in the photo. In 2018, Megan Russell shared an article describing her strategy for beautiful frugal gift wrapping. Currently, we use some beautifully sown cloth gift bags that my wife made many years ago when my children were young. Wellness Mama has a recent article on how to make some similar cloth bags .

Give gifts that are essentials, not just luxuries. In our family, we fostered the practice that our children were spending their own money, not their parents’. As a result, they appreciated when they received gifts of socks, clothing, and other essentials because that meant that they had more of their own money to spend on luxuries. You can also give financial gifts that instead of costing money will hold or increase in value.

Give some presents, not just gifts. A gift is for the sake of the receiver, but a present is for the sake of the giver. Give your children things that they might not spend their own money on, but you want them to have. These presents may say, “I love you” in a different language than gifts do.

Give vocational gifts. While many children were receiving expensive gifts such as snow skis, electric toy automobiles, and trampolines, our children’s most expensive gifts were vocational tools such as computer equipment, graphics tablets, and video software. These gift ideas were generated by the summers they spent exploring vocational career paths.

One of my favorite movie scenes is the climax of the 1971 Walton’s Christmas Movie, “The Homecoming.” John Boy’s father gives him paper and pencils and tells his son, “I don’t know a thing about the writing trade, son, but if you want to take it up you have to give it your best.” The scene is an affirmation that vocation is important and that John Boy doesn’t have to work on the farm if that is not what he is called to do.

There are many powerful reasons to engage in gift giving. Gift giving can encourage and confirm a new identity. Gifts can strengthen the bonds between people. Gifts can help direct the future of someone in your community. They can communicate our love for one another. Perhaps it is because gifts can be filled with such spiritual meaning that we feel pressured at holidays to find the perfect gift or spend so much.

With a little planning, we can gift our loved ones a powerful gift while maintaining a budget.

Photo by Author.

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President, CFP®, AIF®, AAMS®

David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. Favorite number: e (2.7182818...)