The True Cost of The Holidays On Your Financial Budget
There are a lot of hidden costs that people forget about when making a financial budget. Items like taxes, insurance, and other items that do not occur monthly are often overlooked. One big category that needs to be planned for is gifts/parties/holidays. Inside of that category would be things like birthday cards and presents for friends and family, holiday travel costs, holiday meals, holiday decorations and party supplies, and finally Christmas presents. The last category is probably the biggest for many people.
I think a lot of people either forget about it or just don’t want to admit how much they spend on Christmas, birthdays, and gifts. The true cost of the holidays depends on a few big factors: geographic positioning in relation to close family, whether or not you have kids, and how much you get in to the holidays. No matter where you are in relation to those three items, you should try to plan ahead and decide how much you can afford before you start spending.
I would suggest either making a special holiday budget or adding a line item to your regular budget to accommodate the anticipated spending. If you really get in to the holidays, you might want to create that stand alone one and really map out some plans for your spending. If you plan to just have a miscellaneous spending category then Valentine’s Day, Easter, and even Halloween are probably easily covered. Kid’s birthdays can be expensive, especially if you are having a party!
A Holiday Budget for Christmas? C’mon!
I know putting a holiday budget down on paper for some of this stuff can take the fun out of it. It is still a better outcome then having a huge credit card bill or paying interest charges to furnish a Christmas buying spree that you could not afford. In my family, we have really eliminated gift giving between the adults (though my parents do give us a check each year for Christmas and birthdays). Instead, we focus on the kids to make sure have a good holiday season. Some people with large families draw names to reduce the amount of presents needed (often only giving to the children and not the adults).
I think people need to figure out how much Thanksgiving and Christmas will really cost based on extra food, sale shopping, gifts, and travel. We decided to spend $500 this year on all gifts. That is for our two children, 4 nieces and nephews, and other relatives and friends. It is the first time we tried to set a budget, so we will see how it goes. My wife and I agreed on the amount, now we have to figure out how to allocate it. I suppose if we run short, we just will not exchange gifts between the two of us (not sure if we would anyway).
Since we are traveling out of town, there won’t really be any other costs for us. We won’t host any for a party and won’t be buying a turkey or anything for Christmas dinner. I would rather not spend $40 for a live Christmas tree either, but it does make the house smell good (and my wife happy). The modest decorations we already own should be sufficient for another holiday season.
Enthusiasm for Certain Holidays or Celebrations
Some people really get in to certain events like Halloween, Christmas, or kid’s birthdays. I am sort of moderate on the scale. Mostly, I don’t like people spending money on me. A card and a bag of Cool Ranch Doritos let me know you care! Those that love it the most tend to have lots of plans, so hopefully that includes saving all year round for that expense.
It all comes down to choices. If you would rather spend money on holiday celebrations and presents for others over traveling or other activities, then go ahead. Just don’t choose it over saving for retirement. If your holiday budget cannot handle high spending, you will need to find some ways to bring in extra money to pay for the parties and/or gifts (or reduce expenses). Consider scaling back, co-hosting events, or making your own gifts if needed to try and reduce costs. A happy holiday season is made form spending time with friends and family not spending lots of money.
For me, travelling back to the Midwest to see family is a bigger cost than all of the other gifts and parties in our holiday budget throughout the year combined! 3 flights (2 year old now has to have his own seat) can easily run from about $1,500 to close to $3,000 depending on the airline, route, and how far ahead we purchase. Next year, it will be 4 tickets needed as our youngest will turn 2 between Thanksgiving and Christmas. In this case, we factor in travel saving during all twelve months to help cover the costs of this trip in December.
Fortunately this year we will be using miles for 2 of the 3 tickets. Also, having the Chase United Explorer card gives us free bags, which eliminates $150 of costs (3 bags each way x $25 = $150). A brief stay in Kansas City will also be free by using the annual free night from the Marriott Rewards Card (we each have the card, so we get 2 nights per year which offsets the annual fee). Using travel hacking for airline travel around the holidays takes both planning and patience on your part (hotels are much easier in my opinion).
First, you have to accumulate the miles so you have to plan well ahead knowing which airline program you are most likely to use (for us its United). The reason United works well for us is because the hub in Denver results in us not having to fly a much further route and also because the Explorer Card lets us use miles for any seat on the plane. Since more airlines only have a few reward seats on any flight and the demand around the holidays is high, this is a tremendous benefit.
Second, you have to be flexible on your travel days and try to minimize the travel time. This requires patience to find the right flight combinations, especially when traveling with two small children. Some of the other options I have did not pan out. American did not have any seats and US Airways has tons of restrictions for its companion pass and reward seats. Southwest is also not convenient for us as it requires a 3+ hour drive to LA or Sacramento.
Ultimately, I decided to use United points even though I was trying to save them for our 2016 Caribbean trip. I guess I would rather get the $1,600 savings on those 100,000 points that risk them being devalued in the next year. At that rate the points are redeemed at 1.6 cents per mile, not bad, but not great either. The additional $150 bag savings helps, too. I have some ideas on how to refresh that balance, too.
I hope everyone decides to create a special holiday budget or expand their regular financial budget to factor in some of the items mentioned above. Anything I missed? Please let me know.