How to Have a Debt-Free Christmas

Did you go into debt over the last few holiday shopping seasons? If so, you weren’t alone. Many people turned to credit cards to help them have a “good” Christmas. But that’s not how we roll here. Let’s chat about how you can have a debt-free Christmas for years to come.

This post may contain affiliate links. Read our full disclosure here.

But first, my sponsor:

Today’s post is sponsored by my Etsy shop, Savvy Budget Girl TV. In my shop, you will find all kinds of goodies to get you started with cash budgeting and savings challenges. From trackers to physical envelopes and my latest ebook of savings challenges, you can find what you need to help you save and make it fun! Check out the link in the show notes or search Savvy Budget Girl TV on Etsy.

Now, let’s get into the discussion!

If you’re scratching your head wondering why we are talking about Christmas now, in January, it’s because we need to be prepared. Regardless of your shopping strategy (I’m talking about all of you last-minute shoppers out there), you still need to have the funds to cover your gift purchases.

And it’s not just gifts you have to be concerned about during the holiday season. Add in the cost of travel, dinners and other meals, holiday clothing, and decorations, and you can see how easy it is to blow through a budget that only accounted for gifts.

According to a USA Today article, the National Retail Federation conducted a survey of over 7000 shoppers and found that although 43% of shoppers were going to use their debit cards, 38% of shoppers were still going to use their credit cards.

Why does this matter?

The Fed already raised interest rates a number of times in 2022. They will likely do it again. This means your debt is more expensive to carry around. With rising interest rates across the board, it just doesn’t make sense to put purchases on a credit card you can’t pay off right away.

So what’s the answer to having a debt-free Christmas?

It starts with knowing your numbers. Go back and tally up everything you spent on all things Christmas-related and add 20%.

Now take the total and divide it by the number of months you have from now until Christmas. This is the amount you’ll need to save each month to have that previous year’s money available for Christmas.

I’m a cash budgeter and use envelopes, so I keep my Christmas money in an envelope for now. Could it make more money in a high-yield savings account? Sure, but I’m not concerned about that right now; just the habit of saving money.

So when we sat down to decide on the budget for Christmas 2023, we had to keep in mind both what we actually spent money on, including shipping gifts back to Baltimore, and what we didn’t have the budget for. Accounting for inflation and giving ourselves a buffer. We decided on a $1200 Christmas budget. That is actually about average for Americans. With that number, I knew we would need to save only $100 per month until December to fully fund Christmas.

Of course, if you need less money, you’ll only need to save less money per month. But the longer you have to save, the less you’ll have to save each month. Also, you can put extra money from side hustles, bonuses, and raises toward savings goals like that to get it funded faster.

Also, remember this is a sinking fund, not a true savings account. That simply means the money in this fund is designed to be spent and then replenished. Please don’t let your Christmas fund become so sacred that you never use it for its purpose. Spend the money, and don’t feel bad about it!

Another thing I want you to remember is that if you find yourself needing money for an emergency that goes above and beyond your current emergency fund, then don’t feel bad about raiding this and other sinking funds so you can stay out of debt.

I have some fun Christmas trackers in the Etsy shop, so be sure to check them out. Trackers aren’t required, but they could make saving all year fun for you and your family.

While you may do the bulk of your shopping after Thanksgiving, you can also set aside a sinking fund just for Black Friday/Cyber Monday offers. This is so key, especially if you have an online business. There are just so many good deals I wanted to take advantage of but didn’t have the budget for. Ugh, I know. First-world problems!

And don’t forget you can buy gifts all year long. So definitely use that fund for gifts throughout the year.

And, hey, this sinking fund thing works well for those of you with kids. Create a back-to-school envelope and use the same method to figure out how much money needs to go in the envelope each month. This way you can try to relieve some of the stress surrounding back-to-school shopping when July and August hit and take advantage of early sales because you are prepared! 

One of the other things I was considering stocking in the shop is a Christmas planner. Working at a church this past Christmas made the season super busy, and I know I could have used a way to keep everything organized. So let me know in the comments if that’s something you want to see in the Etsy shop!

That’s all I have for you today!

Let me know: how much did you spend on Christmas? Tag me on IG @ savvybudgetgirl.

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