How many times have you panicked at the beginning of the holiday season, wondering how you’re possibly going to pay for everything? We’ve almost all been there. From gifts to decorations to parties and more, the number of ways to spend money during the holidays can feel overwhelming, which is why you need a holiday fund.
We don’t want your bank account to suffer, so that’s why we’re talking all about holiday funds here. What they are, how to make your own, and why the benefits of a holiday fund last all year long.
The benefits of building a holiday fund
First of all, what is a holiday fund? It’s just what it sounds like – it’s money you set aside over the year to spend on all things holiday-related. This can include Christmas, Kwanzaa, Hanukkah, birthdays, Halloween, and more.
Building a holiday fund throughout the year means that you aren’t struggling for cash when the holidays roll around.
So why should you build your own holiday fund? The main benefit is the comfort of knowing that you have enough money to spend during the holidays on everything you’d like.
There’s really no downside to having a holiday fund. If you end up not spending all of the money you’ve put into it, you can use that money for something else.
Roll it over for next year’s spending, or splurge on something for yourself. Whatever you choose to do with your leftover money in the account is up to you!
There are many upsides to creating a holiday fund, including:
It’s a great way to avoid debt around the holidays
Last holiday season, over a third of Americans spent more than they could afford and took on debt. There’s no reason why you have to join them this year. A holiday fund can help prevent you from falling into the overspending trap.
Along with a holiday budget, a holiday fund can help you rein in your spending. By knowing exactly what you can spend and setting aside money for those expenses, you can avoid going into debt this holiday season.
Holiday funds mean less stress
When you plan ahead and save up for your purchases, you can avoid the stress that comes with last-minute shopping and overspending. When you have money set aside for the holidays, you’ll be able to enjoy the season instead of stressing over money.
The holidays can be very stressful in so many ways; there’s no need to add money stress to the mix!
It keeps you from dipping into your emergency fund
Hopefully, you have an emergency fund, where you’ve stashed away money for – you guessed it – emergencies. For the most part, spending around the holidays on gifts and parties does not constitute an emergency. This is why you should try not to dip into your emergency fund for holiday expenses.
A holiday fund that is separate from your emergency fund will help you avoid your emergency fund for non-emergency expenses.
What if I’m in debt – can I still have a holiday fund?
The simple answer is – yes! You can still have a holiday fund if you are currently in debt. While everyone’s relationship with debt is different, in general, it’s absolutely fine to save (and even invest) when you are in debt.
With the right strategy and a good budget, you can continue to pay off your debt and save for the holidays. You might decide on a lower budget for holiday spending and save just enough to cover those smaller expenses.
Consider saving the lavish spending and bigger splurges for the future when you are debt-free. But there’s no reason why you can’t save and spend on your loved ones during the holidays while you’re working toward paying off your debt.
At the very least, you can assure yourself that you won’t be adding to your debt around the holiday season. That in itself is a great financial accomplishment!
Why a holiday fund and holiday budget go hand in hand
One of the key aspects of a holiday fund is a holiday budget. It’s important to know how much you plan to spend on holidays throughout the year, so you know how much to save.
You can set up a holiday budget in a few quick steps. First, make a list of what you plan to spend on and who you plan to buy a gift for, and decide how much you would like to spend.
Don’t forget to include how much you plan to spend on other holiday expenses, like parties, decorations, and entertainment. Another helpful exercise is to look at what you spent last year to estimate what you might spend again.
If you plan to save for your holiday fund monthly, divide this number by twelve to reach a monthly savings goal. If you can, aim to save a little more than this, as unexpected expenses always come up. This is the magic number you will want to add to your holiday fund every month!
Tips for building your holiday fund
Are you ready to build a holiday fund of your own? Here are our best tips to get you started saving so that by the time the holidays come around, you’ll be financially ready for them:
1. Create a separate account just for holiday spending
Have you ever heard of a Christmas Club? It’s a concept that’s been around for generations and is an automated savings account just for holiday spending. While some credit unions offer Christmas Club accounts, you don’t need an official account to reap its benefits.
On your own (or with a Christmas Club), you can open up a checking or savings account dedicated solely to saving for the holidays. Anything extra you earn can go straight into this account. Or, you can set up automatic deposits (see the next tip below).
By the time the holidays come around, you’ll have a dedicated fund to draw from for all of your expenses.
2. Set a savings goal and set up an automatic deposit
Once you’ve decided on how much you want to save and by when, you’ll have a goal to work toward. The very best way to reach this goal is to set up an automatic deposit directly into your holiday fund.
The benefit of an automatic deposit is that the money never touches your regular bank account. It goes directly into the holiday fund to build up until you’re ready to use it.
One option is to set up an automatic payment with your bank. If you get a weekly or bi-weekly paycheck, you can ask your employer to direct deposit a certain amount into your holiday fund.
3. Consider a cash back credit card
If you want a new credit card (and, ideally, if you can pay the balance off, in full, before the end of each month), then a cash back credit card might be the perfect option to build up your holiday fund.
Cash back credit cards give you money back when you spend. They might give you 1% or 2%, or even more (depending on the card and the spending category) on everything you buy.
You can put whatever you earn on your cash back credit card into your holiday fund. That amount of bonus money can add up pretty quickly!
4. Start a side hustle for your holiday fund
If you are looking to build up your holiday fund, a side hustle is one of the most profitable ways to do that. The great part about a side hustle is that it can be as big or as small as you want it to be.
Sure, you can start an entirely new business on the side, but you can also start smaller, like with pet sitting or an occasional freelance writing article.
Like with your cash earned from a cash back credit card, everything extra you make from your side hustle can go right to your holiday fund. Before you know it, your fund will probably be even larger than what you need for your holiday expenses!
5. Try a no spend challenge
Another effective strategy for building a holiday fund is to cut back in other areas. To make this more fun, why not try a no spend challenge for a month? You can decide to stop spending on just one category (like clothes) or go more extreme and stop all non-essential spending.
You can make your own rules! Just know that the less you spend, the more money you’ll have at the end of the challenge to put into your holiday fund!
6. In a pinch for this year? Declutter and sell what you can
Are the holidays right around the corner, and you need money ASAP? There are plenty of ways to still get some extra cash to add to your holiday fund, even at the last minute.
One of our favorite ways is to sell your unused items on sites like Facebook Marketplace, and eBay. And you will never go wrong with an old-fashioned, in-person garage sale.
Not only will you get money for your holiday fund, but you’ll also end up decluttering unwanted things from your house and get a jump start on clearing out your home for the new year.
Is it too late to start a holiday fund? No way!
Are you reading this in November? December even? If so, you might assume that it’s too late for you.
If you think this, you’re wrong! It’s not too late to start a holiday fund, and here’s why:
Holiday funds aren’t just for the winter season
Sure, the winter holidays are when we tend to spend the most, but don’t forget about all of the other holidays through the year. In addition to birthdays, so many holidays include gift-giving and parties.
There’s Valentine’s Day when every year you buy cards and candy for your kids’ entire classes. And Easter, when the Easter Bunny never fails to drop a basket of goodies off at your house.
By starting a holiday fund, no matter what time of year, you can reap the benefits of your savings when these other holidays come around, and you find yourself spending on yet another St. Patrick’s Day cake.
In addition, having a holiday fund means that you have cash available to you whenever you see the perfect item.
That might be wrapping paper on clearance in January. Or the perfect book for your niece that you find in July.
If you have a holiday fund, you’ll be able to snap up those gifts on sale and save even more money.
Every little bit counts
You might feel like it’s too late for this holiday season, but that’s not true because every little bit you can put toward your holiday fund counts.
Let’s say you only have four weeks until Christmas. That’s still enough time to put aside $25 a week from your paycheck. With an extra $100 saved, you can fill your kids’ stockings, buy your holiday cards, and get your co-worker a white elephant present.
No matter when you start your holiday fund, remember that the benefits don’t last for just one holiday season. You can continue saving for the entire next year so that next holiday season, you’ll have a fully funded holiday savings account.
A holiday fund is within reach for everyone!
Whatever your current financial situation is, a holiday fund is always available to everyone. Don’t wait any longer – set up your holiday fund today and be prepared for whatever holiday expenses come up next!
And remember that keeping track of your budget and saving money will always be a smart choice.