Holiday spending can be a delicate subject. No one wants to be the least generous gift-giver in their family or group of friends, but just about everyone is looking for ways to cut back on holiday expenses.
Finding that balance requires some finesse, but determining your holiday budget doesn’t have to be a guessing game. Here are some simple strategies to find a spending limit you’re comfortable with.
How Much to Spend on Gifts
Data from the National Retail Federation (NRF) found that in 2020 the average American planned to spend $650 on gifts for family members, friends and coworkers. Other data from 2020 showed that the average consumer spent $850 on gifts.
While the right amount to spend will differ based on your income, cultural norms and other factors, a basic rule of thumb is to spend between $50 and $100 on a gift for a family member and between $20 and $50 for a friend. Buying a gift for a coworker, like an assistant or a boss, usually runs between $20 and $50.
How to Determine Your Gift Budget
Trying to figure out how much to spend on holiday presents this year? Use the questions below to help you choose the right amount:
1. How Much Do You Currently Have in Savings?
To determine your holiday budget, look at your checking and savings accounts to see how much you can allocate for holiday gifts. Don’t spend your rent money or decrease retirement contributions; just use what you already have that’s not earmarked for another upcoming event or expense.
If you have any gift cards or rewards points, you can add those amounts to the total gift budget to reduce the impact on your budget.
2. Are You Getting any Windfalls Soon?
If your employer doles out Christmas bonuses to employees, you can allocate those funds toward gifts. One possible hiccup in this strategy is that your employer may suddenly change or eliminate their bonus policy (like what happened to Chevy Chase from “National Lampoon’s Christmas Vacation.”)
A safe strategy is to spend 50% of last year’s bonus on gifts. If you end up receiving more, you can top off your gift budget or just save it for next year’s holidays.
3. How Many People are You Shopping For?
To draft a gift budget, write down everyone you’re buying a gift for. Start by only listing those who will definitely get a gift, like your parents, significant other, siblings, nieces and nephews. Include any mandatory gift-giving events like your office’s white elephant exchange or your book club’s Secret Santa party.
Next to each person’s name, write how much you plan to spend on each gift. Add those figures to come up with a total. That will be your basic gift budget. If you end up having more money to spend, you can make a second list of other people you want to shop for, like close friends or neighbors.
4. What Are Your Other Holiday Expenses?
Most of us think spending money around the holidays only means buying gifts, but don’t forget about other expenses like travel, holiday parties and decorations. If you’re flying home, you might easily spend more on airfare alone than on gifts.
Pro-tip: Use Mint’s travel budget calculator to help you plan your holiday trip.
5. What are Your Upcoming Expenses?
Before you drop hundreds on holiday presents, look at credit card and bank statements from last year to see if you have any major upcoming expenses like a biannual car insurance premium or annual vet check-up.
If you’ll be able to comfortably afford those costs along with your planned holiday spending, then you can rest easy. If not, you’ll need to trim your holiday budget to make room.
Don’t Succumb to Peer Pressure
No one wants to be considered cheap – especially by their closest friends and family members – but here’s something to keep in mind. In 2020, about a third of Americans borrowed money to pay for the holidays. So while it may be tempting to go over budget to match what your friends and family members give, consider the possibility that they might be going into debt to pay for it all.
If you lost your job, were furloughed or incurred costly medical bills this year, don’t feel pressured to spend as much as you normally do. Your loved ones will understand that your budget priorities have shifted and that you need to cut back.
Start a Sinking Fund
If planning for holiday shopping stresses you out, consider starting a sinking fund to make next year easier. A sinking fund is a savings account designed for a specific goal, like holiday gifts, car repairs or vet bills.
When you set aside money every month for a sinking fund, you’ll have enough to cover whatever you’re saving for. Here’s how it works. Add up how much you want to spend on holiday gifts and divide that by 12. Then, create automatic transfers for that amount from your checking account to a savings account reserved for holiday gifts. When the next holiday season rolls around, you’ll already have the money you need.
Talk to Loved Ones Before You Shop
If you’re unsure or insecure about your gift budget, consider bringing it up with your family members and friends. They may be one of the millions of Americans who use a credit card or personal loan to pay for the holidays, and floating the idea of spending less might be the best gift you could give them.
You can also suggest a Secret Santa gift exchange where each person buys one gift instead of several. This works best with large extended families and friend groups, because most people don’t really want to shop for a dozen people.