Budgeting for the Holidays: How to Avoid Breaking the Bank

LEXINGTON, Ky. (Nov. 18, 2021) — For many, the holidays are often a time spent with loved ones, your favorite home-cooked meals and gift-giving. But, the holidays can also be a stressful financial time if unprepared. So, what can you do to save money this holiday season, and how can you tackle your shopping list with ease?

To help holiday shoppers prepare, UKNow recruited the expertise of Nichole Huff, Ph.D., assistant professor in the Department of Family Sciences and extension specialist for Family Finance and Resource Management with Family and Consumer Sciences Extension in the University of Kentucky College of Agriculture, Food and Environment.

Huff’s work is centered on improving the financial and mental well-being of individuals and families in and beyond the Commonwealth. 

In the Q&A below, learn more about how to financially prepare and plan for the wildest shopping season of all.

UKNow: How early should people start financially preparing for those holiday purchases? Should we buy across several months to spread out the burden or wait for sales towards the end of the year? 

Huff: The earlier someone can financially prepare for the holidays, the better off their budgets will fare. It’s important to save throughout the year for anticipated holiday expenses, and this year especially, consumers may want to shop even earlier to avoid possible product shortages and price hikes. Economic forecasters predict this holiday season may be particularly difficult for stores to restock shelves once they run out of an item. Additionally, online retailers are at the mercy of postal and parcel services, which means it may take longer for customers to receive online orders. If you have specific gifts on your holiday wish list, waiting for year-end sales may be a bigger risk this year when considering low inventory and shipping delays.

UKNow: We are still in a pandemic, combined with worker shortages and rising prices. Do you project a change in what the average person spends on holiday gifts?

Huff: Yes — holiday spending is expected to return to pre-pandemic highs this year. This doesn’t necessarily mean consumers will purchase more; it means that what they purchase will cost them more. The National Retail Federation estimates consumers will spend an average of $1,000 for themselves and their families on holiday-related expenses this year. The pandemic has contributed to manufacturing shortages, supply chain bottlenecks, shipping delays and price increases and rising prices on consumer goods and services. From food to gasoline to gifts, holiday shoppers and travelers should expect to feel the financial effects of the pandemic this holiday season. 

UKNow: Are Black Friday and Cyber Monday what they once were in terms of savings potential?

Huff: With the pandemic forcing many shoppers online last year, Cyber Monday 2020 proved to be the biggest online shopping day in U.S. history. This was due in part to social distancing restrictions and in-store shopping capacities that limited access to brick-and-mortar retailers. The pandemic has continued to change the way people shop, especially regarding online sales. Economic forecasters expect similar online shopping behaviors this holiday season — with online sales peaking for 2021 between Black Friday and Cyber Monday. Black Friday and Cyber Monday sales have somewhat morphed into one long weekend of online deals (with many stores advertising even earlier sales, some beginning well in advance of Thanksgiving), but savvy consumers can still snag good deals as they search for holiday savings. 

UKNow: What are some common mistakes people might make when gift-giving this time of year, financially?

Huff: A common financial mistake people make during the holidays is to spend beyond their means. Whether you’re preparing for a holiday gathering, traveling to visit family and friends or purchasing gifts for your loved ones, it can be easy to overextend your budget. We might feel pressure to show affection through gifts, or to keep up with social trends we can’t afford. Instead, consider ways to stick to your holiday budget by thinking outside of the (gift) box. Consider your time, talents and resources and create a gift from the heart. Remember that old “grinchy” adage about the holidays being more than what comes from a store. It’s okay to scale back during the holidays. Never go into debt for a holiday gift or celebration.

UKNow: What sparked your interest in financial well-being?

Huff: As a financial educator with a degree in family therapy, my work lies at the intersection of mental health and financial health. When our finances and resources are strained, the stress can negatively impact our physical and mental well-being and our relationships with others. Having worked in crisis intervention, I quickly discovered that I was a prevention professional at heart. If I could educate and equip people with the tools and skills needed to be more resilient, they could improve their ability to rebound from adversity. That’s what I love about Cooperative Extension — it equips people and communities with knowledge and resources to be healthier and more successful across so many areas of human and economic development.

UKNow: Are financial well-being and financial resiliency more important than ever, given the times we are living in?

Huff: Recessionary times — even global pandemics — are not new historic events. If you asked your parents or grandparents, they could likely recall living through economic downturn. However, during these seasons, it is especially important for consumers to strengthen their financial resiliency and well-being. According to the Consumer Financial Protection Bureau, financial wellness is when "a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow them to enjoy life." When products are scarce and money is tight, learning ways to better manage your resources (from household goods to paychecks) is imperative to build present and potential financial health.

UKNow: Any tips for creating a budget, and most importantly, sticking to it? Any recommendations for college students in particular?

Huff: When creating a budget that you stick with, my advice is to keep it simple. At its core, a budget is a list of your income vs. expenses. When expenses exceed income, debt often follows. However, when income exceeds expenses, you generate opportunities to save. The key to budgeting is to record all of your actual and expected purchases for the year — from daily transactions to monthly bills to annual expenses. To make your money work for you, assign each dollar a job. If you’re in the red, look for “spending leaks” to plug. Spending leaks are small, reoccurring or unnecessary purchases that add up over time. These leaks have the potential to drain your budget if you’re not intentional about your spending. Track your purchases each month and adjust your budget as necessary. The goal is to spend less than you earn so that you can begin saving and investing.

UKNow: Is it smarter to use credit/debit or cash for holiday purchases? Are there any advantages to one over the other?

Huff: Generally speaking, anytime we pay cash (or use a debit card) for a purchase, it costs us less in the long run. When we pay for something with credit, we essentially finance the purchase. If we don’t pay off the monthly balance in full, we will pay interest on any amount that remains. Deciding whether to use cash or credit depends on your financial situation. Using cash can be a useful payment strategy to stay within budget. It also reduces your risk of identity theft. If you choose to pay with a debit card, be mindful to regularly monitor your account balance and transaction history. Fraud protection for debit card purchases requires consumers to quickly report fraudulent activity to their financial institution. If you frequently shop online, using a credit card for purchases can provide an added level of security — but only if you use credit responsibly and have the means to pay off the balance.

UKNow: Biggest tip or piece of advice for reducing financial stress?

Huff: Because finances are so integrally tied to our livelihood, they can understandably cause us to experience stress. This is especially true when we incur an unexpected expense, experience an unforeseen life event, or when our income doesn’t stretch as far as we need it to. To reduce financial stress, we can do one of two things: reduce our expenses or increase our income. The latter is often more difficult, so begin by looking for ways to reduce unnecessary expenses. Cancel unused subscriptions, such as monthly streaming services. Switch to generic brands of food, toiletries and household items to save on grocery bills. Talk to creditors about ways to reduce interest rates on credit cards or loan payments, or to move billing dates to a time that works best for your pay schedule. Declutter your home and have a yard sale. Financial strain isn’t alleviated overnight, but its weight can lessen over time with intentionality.

UKNow: How can people practice healthy spending habits during the year in order to be more prepared for the holiday season? 

Huff: It’s important to remember the holidays aren’t an unexpected expense. They come every year like clockwork, and as such, people should plan for the holiday season when creating their annual budget. If you expect to spend $1,200 on holiday travel, food and gifts, then all year you should set aside $100 a month to cover holiday-related expenses. If that seems unrealistic, consider ways to shave that amount from nonessential monthly purchases. For example, choose to forego eating out once a week and instead put that money into your holiday fund.

If the pandemic has taught us anything, it’s to plan for the unexpected. As you celebrate the holidays and the end of 2021, kick off the New Year determined to make your financial wellness a priority in 2022. Begin by growing your emergency fund to cover at least three months of living expenses. Also work to pay down any outstanding debts you have, and then increase your savings contributions. These steps will build your financial resiliency and help you improve your long-term financial well-being.