Mindful money
Oct 4, 20216 min read

How to create a holiday budget (& follow it).

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by Klarna

It’s easy to get swept up in the excitement of the holiday season. We’ve all experienced the thrill of giving a friend or family member a gift they’ll truly treasure. The holidays often bring out a generosity of spirit—and that can mean spending more than you originally intended. If you’d rather not find yourself paying for pricey impulse presents well into the new year, you should create a holiday budget.

In Klarna’s The State of Smoooth: 2021 Holidays Unwrapped Report, we found that over one-third (34%) of shoppers plan to spend more on holiday gifts this season than they did last year. That’s great—as long as they can afford it. Creating a budget and having price points in mind for each of your recipients can help you stay within your limits and avoid overspending. 

Knowing that you’re heading into the new year with your financial house in order is one of the best gifts you can give yourself. If you’re ready to set up a holiday budget—and stick to it—here’s how to do it.

Determine how much you can afford to spend.

Once the holiday season is a lovely memory, you don’t want to discover that you’re unable to pay your rent or mortgage because you decided to go all out on gifts. Establish how much money you need to cover your monthly living expenses. Don’t forget other costs that may impact your budget this season. For example, are you traveling, hosting a holiday party, or making charitable donations? Include these as well so you know exactly where you stand.

Once you’ve deducted all your bills and necessary expenses, you can see how much is left over for gifts. You may feel like a Grinch setting a spending limit, but you’ll be glad you did when you’re not paying for presents—plus possible interest charges and late fees—far into 2022.

Wondering how your budget compares to other holiday shoppers this season? In Klarna’s Holidays Unwrapped report, we learned that 50% anticipate spending between $251-1000 on all their holiday gifts this year.

Make a list—and keep it close.

Santa’s not the only one who should make a list and check it twice! The Consumer Financial Protection Bureau (CFPB) recommends creating a tally of those you’ll buy for this season and assigning a price range to each. Make sure it all adds up and that you’re not going beyond your budget. Keep this guide with you while you shop and cross off those you’ve purchased for as you go so you don’t buy more than you should. Sticking to this list can save you not just money but time as you know how much shopping—and how much money—you have left. 

The CFPB offers the following advice: If something isn’t on your list, don’t buy it. Wise words to remember when you’re bombarded with tempting sales.

Determine how you’ll pay.

Cash? Credit? Debit? Buy now pay later? With so many options, it can be tough to decide which is the best choice for your budget. Knowing how you intend to pay ahead of time can help you avoid unpleasant surprises later. For example, even small costs paid for by credit card can turn into large amounts over time. As the CFPB points out, interest and fees can add about 20% more to the cost of an item for average credit card customers (unless you pay your full balance off every month).

Our Holidays Unwrapped report found that the majority of shoppers plan to choose interest-free options at checkout this season. Gen Z, Millennial, and Gen X shoppers are more likely to pay with debit (59%) over credit (50%), and the majority also seek out flexible payment options, like Klarna’s Pay in 4 solution, when shopping this holiday season (Gen Z: 75%, Millennials: 76%, Gen X: 60%). In addition to making big purchases more accessible, flexible payments help shoppers spread the costs of the holiday season.

Be sure to consider return policies and consumer protections that different payment options may or may not provide. 

Are you getting the most for your money?

Every shopper knows that deals abound on Black Friday and Cyber Monday. But if you want to really make your budget stretch and work for you, be sure you’re taking advantage of rewards programs and cash back offers.

Track your spending all season long. 

A budget is a valuable tool that becomes even more beneficial when you stick to it. Few things dampen holiday spirits quite like realizing that you’ve already overspent and still need to buy a few more gifts. 

As you make your purchases, keep an eye on your budget and remember that every expenditure reduces the total you have left to spend. If you’re on a tight budget, don’t be afraid to be honest and have difficult conversations, letting friends or family know that you may need to cut back. In these situations, the CFPB recommends thinking outside the (gift) box and considering homemade presents, such as a photo album or cookbook filled with favorite family recipes. These gifts have sentimental value and won’t force you to rack up debt you’d rather avoid. 

Conduct a post-holiday evaluation. 

Once the season is over, evaluate. If you stayed within your budget, congratulations! If you spent beyond your means, find your biggest pitfalls so you won’t make the same mistakes next year. Seeing exactly where your money went can help inform next year’s budget and allow you to make adjustments well in advance. 

The holiday season is synonymous with indulging but it’s often easy to get carried away. If you have a budget and price points in mind for each of your recipients, that may help you avoid overspending so you can enjoy the holiday season without financial stress.