You know what they say: Christmas is a time for giving!
But unfortunately in western society, Christmas is also a time for over-spending, extravagance, and going into (more?) debt.
It has become so ingrained in us that we need to buy everyone everything that their heart desires, that most people don’t even bat an eyelash at spending way more than their finances allow them to and racking up some credit card debt in the process.
But I disagree with this practice!
As someone who has been in debt and is now out of it, I can tell you that nothing is better than living within your means.
So in this post, I’m going to show you how we create a realistic Christmas Budget for our family, without going into debt… or missing out on any of the holiday fun!
1) Determine Your Budget
This is where most people make a mistake when it comes to budgeting for Christmas: they start buying first, and they don’t look at their budget until after they have already spent too much… or committed to spending too much.
Start by looking at your budget first and figuring out exactly how much money you can afford to spend.
I recommend never going into debt for Christmas and only putting things on your credit card if you can (realistically) pay it off in the same month that you spend it in.
If you are already in credit card debt, don’t go any deeper into debt and stick with the bare minimum. Think one small gift per person for your immediate family bare minimum. Trust me, Christmas isn’t worth increasing or going into debt for.
(If you want to check out how we got rid of $20,000 in debt in 18 months, read this post!)
A lot of parents have a hard time with this because they are worried about their children feeling left out. But honestly, it’s just part of life!
If our kids wonder about their friends receiving more than they do, we talk with them about money.
Check out this post if you want more tips for how to not worrying about keeping up with the Joneses.
Decide on an amount that you will spend on Christmas that will work with your budget, and determine to stick with it no matter how awesome that cool new toy is!
2) Start Saving Early
The earlier you start thinking about the Christmas Budget, the better prepared you will be to purchase the gifts on your list without going into debt.
Have a Christmas Bank Account
One way to plan for Christmas all year round (and to let yourself spend a little more if you want to) is to create a Christmas Bank Account.
To start a Christmas bank account, all you need to do is take the amount of money that you would like to spend on Christmas and divide it by 12. Then, each month, take 1/12 of the money and put it into the bank account.
Then when Christmas rolls around, you will have all the money saved and ready to use.
Once you know how much you want to Christmas total, decide how much you want to spend on your kids and on each other.
We didn’t used to start with our immediate family when we determined our Christmas budget…
and then there were a couple of Christmases where Ross and I didn’t get each other a single thing because we had spent our Christmas budget before we got around to spending anything on each other.
Now we always start with how much we want to spend on our family before we even think about spending anything extra on anyone else!
4) Make Your Lists
Now take the total amount you are going to spend on your immediate family, and decide how much you want to spend on each person.
You don’t have to worry about spending the exact same amount of money on each child…
I actually don’t think that I have ever spent the same amount on each child. And that is because when we are deciding what goes on their lists, we figure out what they need first.
I’ve found that it changes from year to year who ends up getting more because their needs change from year to year.
Last year our younger daughter got more last year because she was 18 months old and had primarily been playing with her sister’s old toys. She needed things like her own special doll to play with.
This year our oldest daughter will be getting more gifts because she has more needs.
We have never seen the point in spending more money on one child just to even the playing field because, honestly, kids don’t care how much you spend on them or their siblings.
As long as you are giving gifts to your children that they truly want or need, they will be happy.
I often like to follow the “want, need, wear, read” rule, but I don’t use it every single year. Some years they don’t get any new clothing, and sometimes they have multiple needs. But if you are trying to have a simplified Christmas list, it’s a great place to start.
5) Talk To The Grandparents
Getting the grandparents involved is a grate way to save money and still get your children presents that they would love.
Like I mentioned in this post, almost as soon as I know what I want the girls to receive for Christmas, I call my mom and see if there is anything on the list that she wants to get them.
This helps us save money, it reduces the clutter in the house because I’m just re-distributing the gifts that I already wanted them to receive, and it helps my mom know that I will approve of everything on the list even with my Minimalist preferences🙂
5) Then Decide on Extended Family Gifts
Only after you’ve figured out what you can afford for your immediate family should you figure out if you want to exchange gifts with your extended family.
This concept might seem strange if you’ve always given gifts to your extended family, but you actually don’t have to continue doing this… especially if you are on a tight budget.
Don’t Be Afraid to Change What You’ve Done in the Past
Before we had children and had two incomes we did extended family gifts for both sides of the family every year.
But once we became a single-income family, we decided to change how we did things.
We now only exchange gifts with the side of the family that we are spending the holiday with.
Draw Names
Another way you can save money on extended family gifts is to draw names instead of just buying something for everyone.
We did this even before we were on one income.
It’s a nice way to spend more money on a nicer gift for someone else, and it allows you to receive one nicer gift instead of a bunch of things that you don’t really want or need.
Budget Boosters
If you are reading this and thinking that you haven’t saved enough money for Christmas this year, here are some things you can do:
1) Sell Some Things
We love making some extra cash when we need to declutter anything, because, well, who doesn’t like earning some extra money… and selling some items will also help you get rid of a few things before you get a bunch of new stuff in your house that you need to declutter.
(Just kidding… I love Christmas, just not clutter that can sometimes come with it :D)
2) Decrease the Number of Gifts
If you don’t have enough money to buy your kids all the gifts on their list, scale things back, and just give one or two gifts per child.
You will probably be able to get them something a little nicer this way than if you buy them a lot of cheaper gifts.
3) Buy for Less People
It can be hard to decide not to exchange gifts with extended family or friends, but I promise that you will be far less stressed about sticking with your budget if you have fewer people to buy for.
And remember that just because you decide to buy for less people this year, doesn’t mean that you can never do gifts with your extended family again.
The last thing you really want to spend time doing or thinking about, right?
We all know we should do it, but it’s usually the last thing we get around to.
It’s like the vitamins of home management.
Here’s the thing though, budgeting can actually be fun!
I feel like you don’t believe me, so let me show you:
Wouldn’t it be fun if you could afford to take that trip you’ve been dreaming about?
Wouldn’t it be fun if you told your money where to go instead of credit card debt bossing you around?
And wouldn’t it be fun if at Christmas time, you already had the money saved up for gifts instead of digging yourself into a financial hole?
Budgeting can make all that happen!
Yes, it takes some time, some effort, and some grit to stick with it.
No, it isn’t easy at first.
But when you pay off that first debt, when your savings account starts growing, and when you stop spending money on things that you don’t need, it is all worth it!
Before we get into the HOW of building a budget, let’s take a quick look at WHY you should start a budget, in case you still aren’t convinced.
Or if you’re ready to get started, just skip the next section. 🙂
And if you prefer to watch your content instead of read it, here is the video that goes with this post:
Why You Should Start a Budget
1) You Will Get Your Spending Under Control
If you spend more than you make each month and money seems to magically disappear between your paychecks, starting (and sticking with!) a budget will help!
When you have your money allocated to where it needs to go, you know exactly how much money you have left over to play with each month.
Basically, it keeps the money from getting confused as to whether it is fun money or serious money.
Creating a budget will help you see exactly what you are spending your money on… and see if you need to make any adjustments.
Having Netflix, Hulu, and Amazon Prime may be nice, but would it be better if you could afford better gifts at Christmas time if you only subscribed to one entertainment hub?
2) You Will Reach Your Goals Faster
Do you have a trip you want to go on? A car you want to purchase or pay off? Are you thinking of purchasing a house and need a down payment?
Start that budget!
By laying out exactly how much money you need to save and dividing it up into nice manageable chunks that you can save each month, you will reach your goals more quickly.
3) You Will Save More Money
Putting your money toward an emergency savings account or retirement can be a challenge when you are budgeting based on your feelings every month.
Going out to eat will always win over putting that money in an account when you don’t have clearly defined goals.
But when you write down your goals on paper, and auto-draft directly into your savings account(s), you will start to build a nest egg for when you need it.
4) You Can Stop Living Paycheck to Paycheck
Living paycheck to paycheck is frustrating and stressful.
No one enjoys living that way without any financial cushion.
Knowing exactly where your money should go each month will give you the courage to say, ‘no’ to things that aren’t in the budget so that you can begin to build in some wiggle-room.
5) You Can Be Flexible from Time to Time
Sometimes, the kids will need a whole new wardrobe, and usually they all need it at the same time.
If you have a budget though, it’s not a problem!
Just eat cheaper foods for a month, or cancel some subscriptions, or put a little bit less into the college savings accounts.
If you know how much money goes everywhere each month, you can easily move things around temporarily if need be, without completely throwing things off track.
6) You Can Get Back in the Driver Seat
Sometimes it can feel like your finances are in control of you, especially if you are in debt.
By creating a budget, you are back in control.
You can allocate where every bit of money is going and know when your debt will be paid off if you stay on track.
7) Having a Budget Keeps You Accountable
Building a budget, is like having a financially savvy friend who will say, “do you really need to buy that cart-full of things at Target? Or have you already spent your shopping budget for the month?”
It may not be what you want to hear, but you know that your friend is right.
Sometimes it’s just what you need to kick your finances into gear.
8) Having a Budget Simplifies Your Finances
Even though it seems more complicated at first, once you get the hang of it, it will make your finances simple.
Especially if you use my simple percentages trick that I talk about in this post, you will be amazed by how easily you can keep track of your money.
You will know where every dollar is going and never wonder why your credit card bill is so high again.
9) Money Will No Longer Get “Lost”
Have you ever put money in your bank account and had it “disappear” less than a month later? You aren’t even quite sure what you spent the $100 you got for your birthday on, but it must have been something, right?
Having a budget and sticking with it will keep you from spending your birthday money at the Taco Bell drive-through and enable you to use it for something fantastic. (That’s never happened to me by the way…)
How to Create a Budget:
Now that we all understand why creating a budget is so important, let’s go through the simple steps for creating a budget!
1) Grab Your Gear
We are kind of spreadsheet junkies. We have a spreadsheet for everything… from every board game that we own, to our Christmas card address list.
So for us, it’s a no-brainer to grab our laptops if we are looking at our budget. We like to use Microsoft Excel for all of our spreadsheets, and I built aMoney Mastery Google Spreadsheet to get you started on the right foot if you’ve never used spreadsheets before.
The advantage of using a spreadsheet for your budget is that you can easily change the numbers if anything changes without having to completely re-do the math.
If you use the formulas, the spreadsheet does the math for you!
But if paper and pen is more your style, it is also a great way to build a budget. You can grab my Money Mastery Printable Workbook if you would like an easy plug-and-play template.
2) Determine Your Reliable Monthly Income
Take your income after taxes, your spouse’s income after taxes, and any other consistent incomes that you have (after taxes!) and add them all together.
The sum of the net incomes is the amount of money you have at your disposal every month.
Notice that we aren’t looking at every bit of money that you *might* make in a month.
What you want to know is what will absolutely be at your disposal.
Be very sure that you are not looking at your Gross Income. That number is quite different than the cash flow you will have available after all of your deductions are taken out.
3) Write Down All of Your Monthly Expenses
Grab your Workbook or Spreadsheet and write down every bit of money that you spend in a month.
Jot down anything you can think of from how much you spend on eating out, to your mortgage or rent payments, to your Netflix subscription.
If you get stumped, your credit card or bank statements might offer some inspiration.
Be specific.
Then add everything in each category together and write it down. (You’ll find a list of categories in the Workbook and Spreadsheet.)
How to Budget for Food
The food category can be tricky for some people because their eating habits vary greatly from week to week, or because they typically eat out and they want to start eating at home more to save money.
If you fall into either of those categories, you have three options:
1. You can track how much you spend on food for a month before setting your food budget in stone.
2. You can make your best guess and adjust after the first couple of months if you need to.
I used to make a specific recommendation for how much money you should spend on your budget ($100 per person/per month).
BUT in this video I talk about how food costs have gone up since COVID. I now think that you should try to set your food budget as low as you can while still making tasty, healthy meals for your family.
Adjust the number according to your geographic location (I know some places like Hawaii are much more expensive to buy groceries), and your eating preferences (or dietary restrictions). But don’t be afraid to challenge yourself with spending less money!
When you are all done writing down everything you spend in a month, add up all your expenses. Are your expenses 70% or less of your net income?
(If you aren’t sure what 70% of your net income would be, simply multiply .7 by the total net income that you came up with in Step 2. Then compare your answer with the total expenses.)
If you are spending more than 70% of your net income, you are probably going to need to cut some costs in order to be able to save money or pay off debt depending on your goals for creating this budget. We’ll, take a closer look at this later.
Why divide your expenses into two categories? I thought you’d never ask!
After doing all the math. you may find that you don’t have the money to put into savings that you would like to. Or you may be looking to pay off your debt quickly but aren’t sure how you will do that. Or you may want to save for a trip. Or you may find that you are spending more than you make and are getting deeper into debt…
If that is the case for you, then you will probably be looking at cutting some expenses (after you track your spending for a month in Step 8). Dividing your monthly expenses into these two categories will make it easier to see what you can live without.
Necessary Expenses
Everything you put in this category is a non-negotiable expense for your family. You won’t be able to minimize or cut out these expenses without moving or drastically changing your eating habits.
Common things that you may have in this category are Rent/Mortgage, Utilities, Debt Payment, Cell Phone Plan, Groceries, Car Payments, Car Insurance, Home Insurance, Health Insurance, Life Insurance, and Gas.
Unnecessary Expenses
Now jot down everything that is a typical monthly expense that you can either spend less on or cut out completely if you need to.
This is the list that you can work from if you realize that you need to make some adjustments.
It’s hard to minimize necessary expenses (although not impossible if you are willing to put in some work), but unnecessary costs can easily be shrunk, skipped for a month or two, or completely eliminated if you are in a less than ideal financial situation.
Things that could possibly go in this category: Clothes Shopping (most of us don’t need as much as we think we do), Miscellaneous Shopping, Entertainment, Going out to eat, Television/Cable/Dish, Netflix, Hulu, Amazon Prime Subscriptions (even though Amazon wants us to feel like Prime is a necessity).
You’ll be surprised how easily you can live without so many of these things!
5) Allocate Your Savings/Debt Payments
Why is this section about Savings and Debt Payment together? Because if you have debt (other than a mortgage), pay it off before you start putting money into savings.
Once the debt is paid off, you use the money that you had been putting toward your payments and start putting it into your savings accounts.
If you try to save while you are paying off debt, you won’t make progress with either of them very quickly and will probably get discouraged before you are done.
But if you pay off your debt first, you are able to put moremoney toward your debt and pay it off faster. Then your savings will grow more quickly when you can put all of that money toward savings.
For this step, you should decide what percentage of your income you would like to save or put toward paying off your debt.
In our budget, this category accounts for 20% of our net income. When we had/have debt, we use this chunk of money to pay it off. When we don’t have debt, we save 20% of our income.
What To Do With Savings:
Instead of dumping your savings into one giant catch-all savings account, I suggest dividing it up among several different accounts.
The main reason for this is that it is much easier to track the money we have saved for different items or experiences without dipping into our emergency fund.
If you decide to have several accounts for your savings, I recommend using a separate tab in your spreadsheet to keep everything straight.
Here are some savings accounts that we have and I would recommend to anyone that they apply to:
Emergency Savings Accounts: This account is for emergencies such as a job loss or a medical need. Don’t touch it unless you are in a crisis. It is best if you can pretend this account doesn’t even exist.
Set up auto-drafting for this account on the day that you know you get paid.
It is a good idea to have 6-12 months of living expenses stored in this account. If you are just starting out and don’t have a savings account yet, put the entire 20% of your income into this account until you could live off of this account for at least 6 months if you needed to.
Big Goal Account: If you know that you plan on purchasing a house, boat, car, going on a trip, or paying for a wedding; it is a great idea to save money ahead of time.
Putting all your savings into one account can make saving for a goal messy. By having a separate account, you know exactly how far you are from your goal.
If you have more than one goal that you are saving for at a time, open two accounts! Opening accounts won’t hurt your credit or cost you anything as long as you maintain the required minimum balance.
Investments: It is a good idea to put money into investment accounts for retirement needs. Often long-term accounts will have higher interest rates than your run-of-the-mill savings accounts.
We use Edward Jones to keep track of putting our money in the highest yielding investments so that we don’t have to watch the market so closely.
Sinking Funds: These accounts are what we use to save for expected hits to our bank account. For us, this is mainly our cars and insurance.
We use Progressive Insurance and with them, we can save money by paying yearly for our insurances instead of every month.
To avoid a financial surprise once a year, we divide the total amount we need to pay into 12 smaller payments. Each month, we put 1/12 of the money into an account. When our premium is due, we have the cash available.
We also use our sinking fund for car repairs and oil changes. Ross averages out what we need for these each year and puts the money away to take care of the vehicles… plus a little extra since car repairs can come at a premium and usually happen when you least expect them!
College Savings Accounts: Each month we put a little money into two college savings accounts. One for each of our girls. Any time Ross gets a bonus from work, we also put in a little extra.
Most likely the accounts won’t completely pay for their college educations, but it will give them a nice start when the time comes.
Considering the time value of money, it is best to start these accounts as early as possible when you have children.
The accounts that we use for our girls are for education only. The upside of that is that they have a higher interest rate than a regular savings account. The downside is that they can only be used for trade schools or college.
So if neither of our girls decides to go to college, we will have to transfer the money to someone else who wants to use it for education. This is worth it to us because we figure that worst-case scenario we could give it to a niece or nephew.
If you want more ideas for setting up different savings accounts, check out this post!
6) Determine Your Giving
You can obviously skip this piece of the puzzle if charitable giving doesn’t align with your personal values.
But if you’ve never done it before, I encourage you to give it a try!
It’s ok to start small here, even donating $25 a month to a cause can go a long way. Just eat at home once or twice more per month instead of eating out and it will cover the cost.
Even if you aren’t part of a church, it never hurts to giveback to your community. Find a cause or a charity that you are passionate about.
I’ve never heard of anyone who regretted paying it forward!
If you really can’t afford it, volunteer once a month at a homeless shelter or soup kitchen in your area!
There are a million ways to give back if you get creative.
Plus volunteering will teach your children the importance of helping those less fortunate than yourself and treating everyone with respect.
In our house, we tithe 10% of our income to our church. (See this post for more information on recommended budgeting percentages.)
Additionally, we like to donate to ADRA which supports people who live in less fortunate areas of the world or who are in difficult situations.
We like to get the kids involved in choosing how we donate and they often like to pitch in by asking for donations for Christmas and birthdays. This year we bought a goat for a family who needed food and a way to make money.
7) Create a Calendar for Your Budget
Sit down with your calendar (I love this Amy Knapp Big Grid Calendar) and write in your paydays. Now, choose which payday you will have your expenses auto-drafted.
For example, We have our mortgage payment taken out on the first of the month with the first paycheck. Because of that, we have most of our other expenses drafted after the other paycheck hits our account.
That way we have plenty left over for groceries and gas in between paycheck one and paycheck two.
After you have your expenses divided up, decide when you want your savings or debt payments auto-drafted. You may want to do this all at once, or a little bit from each paycheck.
Having this money taken out automatically tricks your mind into forgetting about it!
The other thing you should write down on your calendar is your weekly grocery budget.
Divide your monthly grocery budget by 4 and write it down. It is much easier to stay under budget when you know how much money you have to spend each week at the grocery store, instead of trying to remember the monthly amount.
8) Track Your Spending
Alright, now that you know where you want your money to go each month, it’s time to find out where it is actually going each month.
If you needed to cut some costs, track your spending for another month. Then see if the initial things that you cut out of your budget were enough for you to meet your goals.
If you are still spending too much, keep repeating steps 8 and 9 until you get where you want to be!
If you find yourself struggling to stick to your budget, you may want to use a cash system until you have your spending under control.
But I don’t recommend using a cash system in the long run because you can build credit and make money by using credit cards… if you use them wisely.
Using a cash system is a great way to reset your spending if you need it, though!
11) Stay On Top of It
Once you have honed in on your perfect budget, don’t just forget about it. Check your budget regularly against your bank accounts to make sure you aren’t overlooking any spending.
We love using Mint.com to stay on top of our money. It saves lots of time, and it’s free!
I recommend checking at least once a week, but it doesn’t hurt to check daily while you are getting into the habit. Or you can be super-cool like Ross and check multiple times a day from now until forever.
I always play a game with myself whenever I buy anything other than groceries to see how long it will be before I get a text from him confirming that I did indeed purchase whatever it was from wherever it was.
It used to annoy me until I realized that’s one of the reasons we have been able to live debt free for so long… and it was a helpful habit to have when someone stole our credit cards…but that’s a whole other story!
The important thing to remember is to check frequently, whatever frequently means to you!
Determine Your Monthly Net Income: Add all reliable monthly net incomes together.
Write Down All Monthly Expenses: Write down everything you spend money on in a month from your debt payment to buying toothpaste.
Divide Necessary From Unnecessary Costs: In one column write down everything you can’t live without, in the other, write everything that you might be able to adjust if you need to.
Allocate Your Savings/Debt Payments: Put 20% of your Net Income toward paying off your debt first. After your debt is paid off, build up your savings accounts.
Determine Your Giving: Decide where and what amount you will give to charity.
Create a Calendar for Your Budget: Write down when you get your paychecks. Then determine when your expenses/savings/debt payments/charitable giving will auto-draft.
Track Your Spending: Write down everything you spend for a month.
Evaluate and Cut Costs: How did you do with sticking to your budget?
Track Again: If at first you don’t succeed, try, try again.
