Your Money Matters: Holiday Budgeting Tips To Avoid Overspending

The idea of holiday shopping and trying to get that perfect gift can be stressful.

Personal finance expert Rachel Cruze from Ramsey Solutions spoke with Dave Davis about holiday shopping spending limits.

Dave: First of all, what is it about the holidays that just makes us want to spend, spend, spend, and get everything that everybody says they want?

Rachel: You know, it's funny because it is. It's the holiday of giving, right? So generosity always plays a part, and we always have holiday traditions where we spend money to give gifts to people, whether it's our kids or family members. Sometimes we don't pause and think, 'Okay, how much are we spending?' and 'Are we being wise with what we're spending?' Hopefully, that's what we're going to help viewers with—kind of getting a grip on this because so many people feel the burden of overspending.

Dave: Many of us use credit cards. So let's talk numbers here. You're telling me 28% of shoppers who used credit cards last year for Christmas still haven't paid them off. Is that right?

Rachel: That's right. According to NerdWallet, that's what we're seeing, which goes to show that credit cards have become a means to an end for so many Americans. In today's world, even with inflation and just paying for groceries, people are using credit cards. But when it goes above and beyond what you can actually afford—Christmas is one of those times—it becomes very expensive. People end up swiping the credit card more and more. We also find that when you spend with plastic, you spend 12 to 18% more than when you're spending actual money. So it goes to show that overspending is constant during the holiday season.

Dave: An average of about $1,700 per shopper, up 8% from last year. That's what they're projecting this year. Wow.

Rachel: Yes, I know. It is wild. I feel like every year the numbers keep ticking up. I think we can blame inflation to a degree, for sure, but also our spending habits and expectations around the holidays, which we have to think about as well.

Dave: So we've set up the issue. Now let's talk about some solutions. One of them—I love this—creating a zero-based holiday budget. Explain what that means.

Rachel: This means planning out how much you're going to spend and deciding how much you'll spend on everyone you're buying gifts for. This may feel a little weird for some people, but I would say, list out everybody you're buying gifts for and set an exact amount for each person. Add up the total and make sure it aligns with the cash you've saved so you can stay within your means and avoid debt. This might mean you go back and adjust—like Aunt Rita may not get a blender this year if the cash flow is tighter than expected. But when you do this, you have control over your spending. You can enjoy the shopping more because you're not second-guessing or worrying if you're spending too much on the kids. You've already planned it out, and you have control over your money.

Dave: A holiday budget inventory—this is super important too.

Rachel: It is, especially now that we’re bumping up against the holiday season. You want to have cash on hand to spend so you’re not going deeper into credit card debt. To do that, you need to create a margin by going back to your everyday expenses and asking, 'What can we cut out for the next two or three months to free up extra money for Christmas?' It could mean cutting out restaurants for a month or two to cash flow Christmas this year.

Dave: And subscriptions—that’s so important.

Rachel: Yes, know when your subscriptions renew. If they're on auto-renew, cancel them beforehand so you don’t get charged for another month.

Dave: These are great tips. Also, I want to talk about contentment because you brought this up, and I think it's so important—just being content in this holiday season.

Rachel: Contentment is one of the most powerful financial principles, but it’s not talked about much. Content people—those at peace with where they’re at financially—don’t need more stuff to feel fulfilled. Studies show more stuff doesn’t equal happiness or joy, yet as Americans, we flood ourselves with more and more. Having contentment and peace this holiday season is key. Living within your means, spending your money wisely, and avoiding deep debt will keep you from stressing out for the next calendar year trying to pay it back.

Dave: You’re an author and a children’s book author—talk about bringing your kids into this process.

Rachel: Yes, I’ve written three kids’ books on generosity and contentment. I think it’s important to talk to kids about this. If your Christmas looks different this year—maybe a little less than years past—explain that to your kids. They may imagine a “Santa Claus movie” North Pole scenario with a living room full of gifts, but that’s not reality. Having those expectations talks is important so they’re not overly disappointed on Christmas morning.