The best way to fix your holiday spending habits is to create a monthly budget and stick to it all year, even when the holiday season approaches.
For some, this might mean allotting a set amount of funds each month to buy Christmas presents throughout the year. Others might prefer to put money in a savings account each month, then use it to purchase gifts all at once, closer to Christmas.
No clue how to start budgeting? Try the 50-30-20 budget or zero-based budgeting methods.
50/30/20 budget
The 50/30/20 budget rule is simple. It breaks down your take-home income into three categories: needs, wants, and savings or debt. From each paycheck, you will:
- Use 50% on needs. This category includes monthly expenses like rent, groceries, utilities, and transportation.
- Use 30% on wants. This percentage allows you to spend money on things you enjoy, like dining out, streaming services, and clothes.
- Use 20% on savings and debt. This final category covers everything from student loan and credit card payments to retirement and savings account contributions. You can save for things like a house down payment, vacation, and – you guessed it – holiday gifts for friends and family.
While it’s wise to use some of that 20% of your monthly income on things like funding a 401(k) and paying off credit cards, you can put some of those funds into a savings account. Earmark some money for Christmas presents, and don’t touch it until you’re ready to shop!
Pro Tip: Open a high-yield savings account to store your holiday funds. You’ll be surprised how much extra cash you’ve earned by the end of the year, thanks to the competitive interest rate.
Zero-based budgeting
Zero-based budgeting works similarly to the 50/30/20 rule, but the allocation of your income isn’t so strict. With zero-based budgeting, your goal is to account for 100% of your monthly income so that you end with zero.
That doesn’t mean spending all your money until you run out. Instead, it means setting aside a certain amount for expenses and using the rest of your income for other purposes, like paying down debt, making IRA contributions, and saving money (like for holiday spending).
