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Holiday Spending

By Independent Bank November 1 2021 Savings Tips

How much is reasonable?

Couple out shopping


How much is reasonable to spend on holiday gifts, celebrations, decorations, and travel? It's hard to give a specific dollar amount as an answer. It may be reasonable for you to spend $1,000 on the holidays, whereas it could be reasonable for someone else to spend $300. This is a question you'll really need to evaluate your personal finances and preferences in order to answer. Here are a few guidelines you can use when determining how much holiday spending is reasonable.

Estimate based on your annual income.

There are financial experts who say you can determine reasonable holiday spending based on income. It's wise to put more thought into it than this, but you can use these estimates as a starting point.

Spending 1% of your annual income is reasonable, in most cases. So, if you earn $70,000 a year, spending $700 on the holidays is reasonable. Now of course, if you are in the midst of paying off debt, you may want to spend a bit less than this. If you are debt-free and have really low living expenses, you may want to spend a little more. The additional guidelines below can help you hone in on a number that's more specific to your situation.

Don't go into debt.

If spending a certain amount on the holidays would put you in debt, then that amount is surely too much. If you use a credit card to make your purchases, make sure the amount you charge is one that you can pay off, in full, after the statement comes. Credit cards have extraordinarily high interest rates—sometimes 20% or higher—so you'll pay a premium on any debt you take on over the holidays.

Consider how much disposable income you have.

If you regularly keep a budget, and you should, then you should have an idea of how much disposable income you have each month. A portion of that disposable income is probably taken up by regular, monthly expenses like subscription streaming services and lesson fees. How much is left after that? Putting this "leftover" amount towards your holiday spending is a good starting point. For example, if you have $400 of disposable income left each month, and there are two months until the holiday, you can save $800 towards the holidays.

Determine where you can cut spending.

What things do you normally spend money on that you either could stop spending money on temporarily, or automatically would stop spending money on around the holidays? For example, maybe you normally spend $50 a week going out to happy hour with coworkers. If you skip this for two weeks leading up to the holidays, that gives you an extra $100 to spend on holidays—without having to divert money from any essential needs or costs.

Consider your holiday plans.

What's reasonable to spend also depends on how you plan to spend the holidays. If you're spending them at home with close family only, then you can budget a bit less than if you're traveling across the state to party with 25 family members who are all expecting gifts. In neither scenario should you over-spend or go into debt, but it may be worth cutting other costs and trimming your budget so you can spend a bit more in the second scenario.

In the end, it's up to you to determine what reasonable holiday spending is for your situation and life. Start with about 1% of your annual income, and adjust up or down from there based on the other factors discussed here.

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