Sticking to Your Holiday Budget This Holiday Season
Fast Links
Key Takeaways:
- In recent years, the holiday shopping season has been starting earlier than ever, with half of all consumers starting their gift buying by October.
- Americans are set to spend more this holiday season than they did last year, with shopping budgets rising 4%.
- Spending changes vary by category, with vehicles and personal care products seeing substantial increases.
- The best time to start budgeting for holiday shopping is earlier in the year as part of a regular savings habit.
- Younger generations are spending much more than they used to, with Gen Z budgets rising 37% this holiday season.
- Debit cards and cash remain the most popular methods of paying for holiday shopping, with a growing number of Americans also relying on Buy Now Pay Later programs.
Christmas came early this year.
Ready or not, the holiday shopping season is here -- and has been for a while.
With retailers rolling out Black Friday deals before Thanksgiving week, holiday shoppers have gotten off to an early start. According to the most recent data from McKinsey & Co., most U.S. consumers start their holiday shopping in October or earlier.
To some, an earlier Black Friday may have seemed like an invitation to spend more money or accrue more debt; however, shoppers may have also used the early access to holiday cheer as a means to maintain control over their bank account and shop more mindfully this holiday season.
Putting money away -- and also planning out holiday expenses in advance -- are effective tactics to help mitigate overspending, according to Paul Golden, Managing Director of Media Relations and Executive Engagement for the National Endowment for Financial Education.
“The holiday spending season shouldn’t come as a budgeting surprise,” Golden says. However, he adds, all the bells and whistles that come along with the holidays, from gifts to wrapping paper, decorations, holiday parties, and more, can lead to the “potential for overspending and strain on your budget.”
Fortunately, implementing tactics like shopping lists and spending limits can help to manage cash flow and prevent overwhelming holiday debt. With that in mind, let’s take a look at how U.S. shoppers plan to save, spend, and borrow during the holiday season, and how your plans compare.
While some borrowing may be unavoidable during tough times, it’s important to keep it under control. Here’s our guide to managing your holiday budget and spending, and how you can keep your seasonal borrowing in check.
Holiday budgeting: How do you measure up?
According to KPMG’s 2024 Holiday Shopping Survey, Americans are set to spend 4% more on holiday shopping this year compared to 2023, with total seasonal budgets reaching $948 per person. Notably, about half of all consumers surveyed expected to increase their holiday budgets this year.
This trend is more pronounced among low- and middle-income households than wealthier ones. In fact, households earning between $50K-$90K anticipate increasing their holiday spending by about 10%. To budget for that extra spending, some consumers are pulling back on holiday parties, with the average spending per event expected to drop by 11%.
Consumer preferences are also seeing some notable shifts this year. More shoppers are picking mass-market retailers as their destination of choice, showing less interest in dollar stores and luxury stores than in previous holiday seasons. Other trends include:
- Greater self-indulgence. Shoppers are spending 21% more on themselves this holiday season.
- Increased Black Friday interest. 61% of consumers cite Black Friday as the season’s most important sales event, up from previous years.
- Less social media influence. Reliance on social media for shopping advice dipped 5 points from last year, indicating that influencers are becoming less influential.
How do these trends align with your holiday shopping behavior?
Situation: You haven’t started saving for the holidays
You may not be able to put much money away if you’re just now beginning to save for the upcoming holiday season, says Matt J. Goren, Ph.D., CFP, who is the Vice President of Financial Planning Education at CeriFi and Dalton Education; however, you may still be able to free up some funds if you get creative.
“For most people, it might be too late,” Goren says. “But if you cut back on other expenses, there still can be some time for that. It means making sacrifices somewhere else and rearranging priorities.”
The takeaway: Plan your budget now for next year
Even if after reducing your restaurant, grocery, or other expenditures, you find you can’t splurge too much on your holiday spending this year, there’s always time to change your financial habits for the future -- for instance, by saving a bit of money each month year-round that is dedicated to the holiday season.
Goren recommends starting to save early for next year -- ideally in January -- and potentially setting up a separate savings account that receives automated payments from your checking account. Keeping your holiday funds in a separate account can be a more effective way of saving money for later use on holiday purchases than just placing extra money in a pre-existing account that you regularly access, he says.
Goren says the following: “If it’s literally in a separate account, where you have to log in to schedule a transfer and watch the money coming out and the balance in the gift account go down, you are concretely seeing, ‘That was going to be the thing for my daughter; that was going to be the thing I bought my mom -- but now it’s not because I’m going to spend it on this other thing.’ That really helps control spending.”
Holiday spending: How will you measure up?
As the KPMG data indicates, Americans certainly aren’t tightening their belts this holiday season. But that doesn’t mean every category of spending is seeing an increase:
- Expected holiday spending on vehicles and personal care products is up sharply, rising 18% and 12% respectively.
- On the other hand, spending on hobbies and toys is down, falling 5% and 11% respectively.
Holiday travel, meanwhile, continues to weigh on consumer wallets, with spending on vacations set to rise 6% this season. 39% of those surveyed expect to spend more on holiday travel this year compared to 2023, with another 47% expecting to spend about the same. Just 18% anticipated spending less.
Some of these figures are likely due to consumer optimism amidst rising real wages and relatively low unemployment. Inflation is also playing a role, however, with elevated CPI figures in 2024 driving up the sticker price of gifts and travel. With the cost of living much higher this winter season, it’s no surprise to see holiday spending rise too.
While consumers across the board are spending more this holiday season, those who are pulling back offered a mix of reasons for decreased spending. As prices have risen, some cost-sensitive shoppers are becoming savvier about their spending habits, with 25% planning to buy gifts during sale events and 23% opting for less expensive brands. Personal finances, however, also drove some of the decrease, with 34% pulling back due to falling household income and 14% doing so because of high credit card debt.
How holiday shopping differs by generation
A separate PwC survey offered more insight into how holiday spending habits differ by generation. While Americans are spending more money across the board, that increase is most pronounced among younger shoppers:
- Millennials (28-43) expect to spend 16% more during this year’s holiday season, with holiday shopping totaling $2,222 per person.
- Gen Z (17-27) expects to spend 37% more in 2024, although their total spending of $1,752 is still below Millennials.
- Gen X (44-59) expects their spending to dip by 18%, totaling $1,454 per person.
- Finally, Boomers (60-78) expect their holiday spending to remain roughly steady at $1,126, falling by a slight 2%.
The takeaway: Plan now for next year
Aligning family and friends’ expectations for gift exchanges ahead of time can help prevent feelings of inadequacy -- particularly if you feel like you didn’t get enough presents for loved ones who bought more for you. Goren suggests negotiating the rules to align with everyone’s needs:
“Maybe Christmas Eve, each person gives one gift to everyone else in a round-robin; Christmas morning, you do the same thing, and Santa also [gives the children] one present. Then you’re just filling in the boxes -- OK, we need three gifts. It’s way harder to overspend because there’s a limit.”
Alternately, family members could agree to focus on a cost, instead of quantity, says Alex Melkumian, financial psychologist and founder of the Financial Psychology Center in Los Angeles. He suggests:
“You can have a family meeting to set the rules around gift-giving, and say, ‘Hey guys, we're not going to buy anything over $100’ — or whatever amount you want to set.”
Holiday payments: How do you measure up?
In a reversal from previous years, cash has been dethroned as consumers’ favorite holiday payment method of choice. This year, 41% of shoppers plan to use cash, slightly below the 46% that plan to use debit cards. Another 31% plan to use a credit card that they’ll pay off in full to avoid interest, while 11% will rely on Buy Now Pay Later programs. These figures are based on a CNET survey, which also found that 3% of consumers were planning to use the ill-advised strategy of dipping into their long-term savings to fund holiday purchases.
Situation: You’re already in debt
Some consumers may have extra purchasing power because they've received a holiday bonus; however, not all employers hand them out -- which may mean several consumers rely on credit instead.
“We have millions of people who begin every single year in the hole, and then they have to climb out,” Goren says. “That's really difficult to escape; you're being dragged backward by the debt.”
Consumers can end up spending even more than they’d planned on holiday purchases due to interest rate charges and fees if they can’t afford to pay their next credit card statement in full. Some may even end up drawing from their savings to pay for the credit card debt they incurred to buy holiday items.
The takeaway: Plan your holiday budget now for next year
If you’re concerned that ringing in the holidays this year may lead to lingering financial issues, there are ways to keep your borrowing in check, such as creating -- and more importantly, sticking to -- a holiday budget and not straying from your gift list.
The following tips can help you successfully celebrate without going overboard on credit card use or other forms of holiday borrowing.
Holiday borrowing blunders to avoid
Here are 5 holiday budgeting blunders to avoid when shopping for gifts this holiday season, especially if you plan to borrow money to pay for them.
No. 1: Overdoing in-store credit cards
It can be tempting to open a new store or rewards credit card account to land the best last-minute deals on holiday gifts, but is that helping your situation?
While store credit cards can provide benefits such as discounts and cash back, you may want to carefully consider any sudden urges to apply for one during the checkout process.
A hard credit inquiry, which can ding your credit score, is often required to receive a retail card. As long as you make on-time payments and maintain a low balance, your score can recover. However, applying for multiple cards at once can have a longer-lasting impact.
Additionally, a number of store credit cards have a higher APR than other types of cards, which can lead to high-interest payments and spending more during the holidays than you can ultimately afford.
No. 2: Going off-book
To bypass the lure of seemingly huge sales and new product pushes, Golden suggests making a list of things you want to purchase for the holidays, and, like Santa, checking it twice — or more frequently — to see if it needs adjustments. Consider the following:
- Set a dollar amount to spend on each person.
- Once you purchase a gift for someone, cross them off your list.
- Take all of your holiday expenses into account: holiday travel, parties, potlucks, decorations, etc.
- Do not exceed your preset limits for each budget item.
- Cut your list, if necessary.
Melkumian also advises exercising discipline when you’re tempted to make holiday-related impulse buys.
“If we buy gifts for five different people, then a lot of times, we buy five different gifts for ourselves,” he says. “We then end up spending double.”
No 3: Spending money you don’t have
Cash -- which continues to be one of the most popular payment methods among consumers this season -- may be a better option when you’re stocking up on holiday goods. An empty wallet can serve as a visual cue that the allotted amount you plan to spend is gone, and it’s time to stop shopping.
Also, remember to shop smart. Inflation, supply-and-demand, and other economic factors may result in sticker shock when consumers start their holiday shopping, according to Goren -- who says even when those elements aren’t an issue, people typically tend to overspend.
“That's true even more this year when inflation's been higher than it has been in decades, so everything is surprisingly expensive. We might really see some price gouging -- because unlike buying a couch, where you can wait, there are these hard deadlines. Christmas is always on the 25th of December.”
Allowing enough time to hunt down the best price for holiday items -- and doing some comparison shopping -- can help you avoid overspending. Be careful not to jump on a purchase just because you’re thrilled to find it’s in stock, says Dr. Reilly S. White, Associate Professor of Finance at Anderson School of Management at the University of New Mexico:
“If things aren't available because of supply chain issues, or it’s twice the price online versus what it should be, I advise always wait, wait, wait until the supply chain issues are shorted for expensive items Don't spend more than you should.”
No. 4: Buying gifts people don’t need
The KPMG survey found that about half of all consumers plan to spend more this holiday season, with about 30% of respondents attributing that increase to buying more gifts per person.
This holiday season can be a prime scenario for spending too much. While economic factors have made it tough for many families to put enough gifts under the tree for the past few years, it’s still important to recognize what realistically fits in your budget and what does not.
If, for instance, your budget won’t allow for show-stopping gift-giving this year, focusing on more experiential options may be a way to express your care without incurring excessive debt.
“The idea is it's not about the money, but enjoying ourselves and our family and having experiences together,” Melkumian says. “Five or 10 years from now, you're not going to remember that purse; but you're going to remember, ‘Hey, we actually did this really cool thing with mom and dad.’”
No. 5: Borrowing from yourself
Spending too much during the holiday season can cause additional stress if you’ve been struggling financially.
If you’re truly struggling to save for retirement or would need to tap into an emergency fund to pay for an outing or other gift, you may want to consider an alternative approach.
"What are the things you need to spend money on -- housing, transportation?” Goren says. “Are you prioritizing the future and thinking long-term? Until you've got your finances figured out, gift your time; your talents -- things that don't cost money and are probably going to be more appreciated by the people you're gifting them to."
The bottom line
Overspending during the holiday season can be easy to do, especially if you don’t have the right measures in place to protect your bank account. Fortunately, implementing tactics like using detailed shopping lists and purchasing limits can help manage your cash flow and keep your spending habits in line, especially in a season that can be ripe with holiday sales.
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