It may be difficult to conjure up visions of snowy holiday scenes when the temperature outside is over 90 degrees, but many financial experts recommend starting to save for the holidays now to soften the blow to your budget.
American families are expected to spend $975 on holiday shopping in 2023, according to Gallup’s latest polling. That’s up from $875 in 2022, according to US Census Bureau data.
Setting aside nearly a thousand extra dollars is a big lift, so finding sneaky ways to build savings now is crucial. Otherwise, you could start the new year saddled with credit card debt and struggling to pay down ballooning balances.
“The holidays happen around the same time every year, so let’s prepare for it,” said Jannese Torres, author and money coach.
Here are six tips from CNET Money’s expert review board that can help you save money this holiday season.
1. Set spending limits
Before you plan your holiday budget, now’s a good time to set expectations with your friends and family about gifts and plans, too, said Shang Saavedra, founder and CEO of Save My Cents, Inc.
“On my side of the family, my parents and I actually do not give Christmas gifts to each other because we find the tradition quite unnecessary, so that also saves me from shopping for two gifts,” said Saavedra. “On my husband’s side of the family, we do gift cards for all the adults, which simplifies things a lot.” What’s most important is the thought, not the extravagance, she added.
Talk to your family now to set budgets for gifts. If you have a large family, you could suggest hosting a Secret Santa or white elephant, so each person is only buying one or two gifts. You can also use these strategies to save money if you exchange gifts at work or with your friend group.
2. Make a plan and stick to it
To curb overspending, create a plan and adhere to it. It can be tempting to spend a few more dollars to get someone a gift we really want them to have, or because it’s a good deal. But the budget can help curtail overspending and let you creatively think about how to stretch your savings.
Torres recommends starting with a list of people you plan to buy gifts for, setting a clear budget for each person, and shopping sales to save on gifts.
3. Create a sinking fund
A sinking fund is a savings account where you stash money for something you’re looking forward to, like an event, vacation or even the holidays. If you don’t already have one, a high-yield savings account is a great place to stash savings because it pays a higher interest rate than a regular savings account, said Saavedra.
“An online high-yield savings account is great because your savings can earn interest, and because it is an account separate from checking, you have less temptation to spend the money.”
Torres added that HYSAs have some built-in benefits, too. “Many HYSAs are online-only banks, which means you can’t just walk into a branch to withdraw your funds,” she said. “Typically, you have to transfer the funds to a checking account in order to withdraw, so it can help curb your temptation to randomly dip into those funds.”
There’s another compelling reason to open a separate savings account. Lanesha Mohip, a corporate accountant and financial educator, recommends opening a new savings account to keep your holiday fund separate from your other financial goals and accounts. “This is an easy way to reduce impulse spending while ensuring your priorities are being taken care of,” she said.
4. Automate your savings
Saving money can feel like a chore, but automating your savings takes some of the hassle out of it. Every dollar adds up to help you comfortably afford gifts, travel and decorations.
Saavedra said that contributing money monthly can help you have more set aside and avoid taking on debt. She recommends making regular contributions to your sinking fund each month based on how much you plan to spend. Setting up automatic transfers to your savings can make this easier.
If you’re not sure how much to have auto-transfer into savings, figure out how much you plan to spend and divide it by the number of paychecks you’ll have before you plan to shop.
Let’s say you plan to spend $600. If you do most of your shopping on Black Friday and have six pay periods between then and now, you’ll need to save $100 from each paycheck to have $600 saved in time. That’s not including any interest you’ll earn on top of this.
5. Put your money in a short-term CD to avoid spending
If you have a sum of money already set aside that you’d like to earn guaranteed interest on and want to avoid spending, you might consider stashing it in a one-month or three-month certificate of deposit. CDs let you lock in an interest rate when you open your account, in exchange for leaving your funds in them for a set period of time.
Based on our weekly tracking, high-yield savings accounts currently offer an average 3.77% APY. Some banks offer even higher rates, such as Bask Bank (5.10% APY) and Nex Bank (4.54% APY). Although high-yield savings accounts offer higher rates right now, a CD can still come in handy.
CDs are a great option if you want to trick your brain into not touching your savings, said Saavedra. “You’re given this set time where you feel obligated to commit the money to the CD and wait,” she added.
Another bonus is that if you’re worried about interest rates dropping in September, locking in a CD now can help protect your interest earnings. A CD’s also a good option if you want to prevent yourself from spending your holiday shopping money.
Make sure you won’t need your funds before the CD term expires. Holiday sales seem to creep up earlier each year, so if you want to get an early start, you’ll pay an early withdrawal fee if you pull out money from your CD before the term ends.
6. Shop early, but continue saving
Should you start shopping or saving now? That’s the million dollar question. Mohip said a little of both is a smart way to save money without depleting your savings and to take a balanced approach that best fits your lifestyle.
“While shopping early allows you to take advantage of sales and spread out purchases, saving for longer provides more time for interest to accrue and flexibility in your budget.”
Another reason to shop early? Mohip said it gives you more time to maximize credit card rewards, cashback programs and other savvy savings strategies.
Since holiday shopping deals start rolling out early in the fall, taking advantage of them can also help you stick to your budget.
Torres agrees and said shopping early is a good way to avoid paying top dollar for gifts because you’re in a time crunch. “Spreading out your shopping over time can help you space out the expenses and take advantage of sales, she added.
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