Financial consultants often recommend keeping holiday spending under 1.5 percent of gross income. This figure includes gifts, decorations, travel, and food for holiday parties. For example, on a $50,000 income, the holidays should cost less than $750.
Guidelines like this one are not universally true, however, especially if you already have high levels of debt, are facing a period of reduced income, or have high expenses in your future for health-related expenses, college tuition, etc.
Unfortunately, holiday displays, advertising, and peer pressure often lure shoppers to purchase more than they can afford. You don’t have to spend lots of money to have the holiday spirit, but many people feel trapped by traditions and expectations, leading them to overspend. Parents often try to get their children whatever they ask for, and some have to travel great distances to be with family.
It is important to set a budget that includes all types of holiday spending and that fits within your personal financial situation. No one wants to face a pile of bills in January and February without the ability to pay them.
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