Holiday shopping season is here, and if you're feeling pressure to spend big this year, you're not alone. According to the National Retail Federation (NRF), Americans are expected to spend an average of $890.45 per person on holiday items which is just shy of the all-time high reached in 2021.
On average, consumers plan to spend $627.93 on gifts for family, friends and coworkers. The rest typically goes to seasonal extras like food, decorations and greeting cards. Between rising prices, wish lists and festive marketing everywhere you turn, it’s easy to go overboard.
But how much should you actually spend on holiday gifts? That number should depend less on national averages and more on your personal financial situation. Here’s how to set a gift-giving budget that won’t derail your financial goals.
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Breaking down the holiday budget
When most people think “holiday budget,” they think “gifts.” But presents are just one piece of the spending pie.
Other common expenses include:
- Decorations: Tree trimmings, lights, candles and wreaths
- Travel: Flights, gas, lodging and pet boarding
- Entertaining: Food, drinks and party supplies
- Miscellaneous extras: Wrapping paper, postage, tips and spontaneous purchases
To create a budget that works, zoom out and look at the entire holiday season. Start with what you can afford to spend overall, then decide how much of that total should go toward gifts.
How to determine a realistic gift-spending number
There’s no universal number that works for everyone when it comes to holiday gift spending. While surveys and statistics might say the average person is spending $620 on gifts, your personal finances, not national averages, should drive your decision.
One popular method is to base your gift budget on a percentage of your annual or monthly income. For example, setting aside 1% to 1.5% of your annual income for holiday gifts is a reasonable starting point that keeps spending proportional to your financial picture.
Someone earning $70,000 a year might aim for around $700, but if you're juggling other financial goals or facing a tight season, it’s perfectly okay to spend far less.
Another approach is to use a zero-based budget and assign a specific dollar amount to each person you plan to shop for. Start with your overall holiday budget, subtract any known expenses like travel or decorations, and then divide what’s left among gift recipients.
Set up simple money rules for the holiday season
If you’re worried about overspending, try a cash-only or envelope system, where you withdraw a set amount of money and commit to not spending beyond it. This technique can be especially helpful in avoiding credit card debt during the busiest shopping season of the year.
When setting your gift budget, take time to reflect on your broader financial situation. Are you currently building up an emergency fund, tackling high-interest debt, or saving for a big purchase like a car or home?
Are you planning to travel or host events that will increase your overall holiday spending? Do you typically overspend during the holidays and regret it come January? Being honest about your habits and goals can help you create a spending plan that brings joy instead of stress.
Smart strategies to stay on budget without cutting joy
Holiday budgeting doesn’t mean you have to become a Scrooge. In fact, some of the most meaningful gifts and memorable traditions cost very little. If you're trying to stay within your budget, consider alternatives to the traditional everyone-gets-a-gift approach.
One effective strategy is to do a Secret Santa gift exchange among family or friends, where each person draws a name and buys just one gift. This dramatically reduces how much you spend without sacrificing the fun of giving.
Setting group gift caps is another budget-friendly move. Families or friend groups can agree on a limit, say, $25 or $50 per person, to keep things fair and affordable. You can also use credit card rewards, points or cashback to pay for gifts or gift cards, which can stretch your holiday dollars without tapping into your checking account.
If you’re shopping online, take advantage of price-tracking tools like CamelCamelCamel for Amazon or browser extensions like Honey and Rakuten to find the best deals and cashback offers.
When it makes sense to spend more and when to scale back
There are times when spending a little extra during the holidays is completely justified, and even worth prioritizing. If you’re celebrating a milestone year, like a child’s first Christmas, a wedding anniversary, or a rare family reunion, it may make sense to allocate a bigger portion of your budget to gifts or experiences that mark the occasion.
Similarly, if you’ve saved for the season all year and are on solid financial footing, allowing a little more room in your gift budget can enhance your holiday experience without causing financial harm.
On the other hand, it’s smart to pull back if you're in a tight spot. If you’re carrying credit card balances, don’t have an emergency fund, or your income is unpredictable, it's better to spend conservatively and communicate your intentions with loved ones.
Most people are more understanding than we give them credit for especially when you're transparent about focusing on your financial goals. Thoughtful gestures like homemade gifts, shared experiences, or even heartfelt cards can go a long way and often mean more than something expensive.
Your holiday budget should support your bigger financial goals
It’s easy to get swept up in the festive spirit and spend more than intended, especially when emotional pressure, advertising and social comparison come into play. But the reality is that holiday spending should always support your long-term financial health instead of sabotaging it.
Whether you’re saving for retirement, building a rainy-day fund or working toward a debt-free life, your holiday budget should reflect those goals.
Think of holiday spending as part of your overall financial plan, not something that happens in a vacuum. Overspending in December can create setbacks in January that take months to recover from. On the other hand, sticking to a realistic budget helps you ring in the new year with financial peace of mind. That means no guilt, no credit card surprises and no scramble to play catch-up.
So when it comes to your holiday spending, choose a number that aligns with your values, brings you joy and supports the future you're working toward. A thoughtful, balanced approach to holiday giving is the best gift you can give yourself.
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