Budget

Financial New Years Resolutions for Baby Boomers

a piece of paper _new year resolutions for baby boomers

Happy 2021! In the spirit of the New Year, I have put together a list of financial New Year’s resolutions for baby boomers.

These financial goals are especially important for people who are planning to retire within the next 10 years. I personally think that the beginning of the year is a great time to start something new and work towards a goal.

Here is the list of financial New Year’s resolutions for baby boomers:

1. Determine how much of the nest egg you will need.

When you are near retirement, it is important to know how much of the nest egg you will need to live comfortably for the rest of your life. How do you figure it out? You have options.

The typical advice is you should aim to replace 70 to 80 percent of your annual pre-retirement income. For example, if you earn $70,000 per year before retirement, you should expect to live off $49,000 to $56,000 per year.

Also, you can use an online retirement calculator. Take a few minutes to enter initial information and then see the numbers, and where you stand today.

Vanguard – Retirement Nest Egg Calculator

Or you can use your current expenses and determine how it will change when you retire.

The best advice is to create an estimated retirement budget based on your current and future expenses. You might have a general idea of what you spend now. But you will be better prepared financially for retirement if you have a clear picture of your expenses now and how that might change in the future.

Related Articles:

2. Get a clear picture of your retirement income.

When you are working, you probably have a single employer and a single source of income – your salary. In retirement, everyone has different sources of income.

As a retiree, you receive income from multiple sources: Social Security, pension, part-time job, or rentals (if you have any).

Another source of income will come from your nest egg – investments and retirement savings:

Tax-deferred accounts – 401(k), IRA
Tax-free – Roth IRA, Roth 401(k)
Taxable investment accounts
Taxable bank checking and savings accounts

Getting a clear picture of your retirement income will help to make sure you have enough money to cover all your living expenses.

To make your assets last through the next 20 or 30 years, use the rule of thumb to withdraw 4 percent of your portfolio annually.

For example, if you have $500,000 in retirement funds, you can spend roughly $20,000 ($500,000 x 0.04) per year when you retire. Add this number to your Social Security, pension, and other savings, and calculate if it is enough to support the retirement of your dreams.

Related Articles:

3. Set a target retirement date.

woman and man walking on the beach - financial new year goals for baby boomers

Another important financial goal for baby boomers who are near retirement is to set a target retirement date. We all need to plan for the day when we are ready to retire or can no longer work.

Based on your target retirement date, retirement income, and what you want to spend in retirement, you can determine if you have enough money saved for your golden years. If it is not enough for a comfortable retirement, move the date, and save more into your retirement funds.

Related Article:

7 Financial Mistakes to Avoid in Retirement

4. Update your budget.

What is your budget? How much you want to save and how much to spend in 2021?

Sticking to your budget can help to know where your money is going. If you want to save more money for your upcoming retirement, begin eliminating some expenses that may not be important to you anymore.

When you retire, you do not need a lot of things that you did when you were working. The costs of commute, take-out lunches, and business clothes will go down. But you will start spending more money on travel, hobbies, and activities.

Balancing income with your spending plan will help you to save more money for retirement.

Related Articles:

5. Maximize your retirement savings.

Whenever possible, increase your retirement contributions up to the maximum allowed in retirement plans such as 401(k), IRA, and Roth IRA.

When you are a few years away from retirement, being short on retirement savings can be problematic. The best option is to start reducing expenses in your budget, so you can put more money into your retirement savings.

The 2021 contribution limits are:

$19,500 for 401(k) retirement plans. And if you are age 50 or older, the catch-up contribution is an additional $6,500. So, you can save a total of $26,000.
$6,000 combined contribution for traditional IRA and Roth IRA. And the catch-up contribution for people age 50 or older is $1,000. So, you can save up to $7,000 with your pre-tax money (IRA) and after-tax money (Roth IRA).

Related Article:

Why Do You Need to Max Out Your 401(k)?

6. Get out of debt before retirement.

Paying off debt, no matter how much you owe, is a key to a stress-free retirement. Getting into retirement with any kind of debt will put a burden on your lifestyle.

The best advice for baby boomers is to pay off all your debts before you retire including a mortgage.

When you are working, you have years of earned income to pay a mortgage, credit cards, student, or any other kind of loan. But once you retire, you will be living on a fixed income.

And when you start living on a fixed income, it is hard to pay off debt if you need to pull big chunks of money from your savings. Although, big withdrawals from retirement funds could push you into a higher tax bracket.

Being debt-free gives you more freedom and money left in your pocket to enjoy your golden years than struggling to pay the mortgage or other debts.

To pay off all debt including a mortgage might not be realistic for everyone. However, the less debt you have, the better you are prepared financially for retirement.

Related Article:

How to Pay Off Debt Before You Retire

7. Rebalance your portfolio.

list of 2021 goals - financial goals for baby boomers

The 2020 year has been a volatile year for financial markets. It can be tempting to stay away from stocks to reduce the risk of losing money in your retirement funds.

But stocks provide growth, and investing for growth is important at this stage of your life. If you retire at 65 and spend 20 years in retirement, you need to have enough growth to make your money last that long.

Take the opportunity to review your asset allocation and make sure your portfolio is diversified and invested for growth. You should have a mix of stocks, bonds, mutual funds, and other assets that fits your retirement goals.

You need to remember that a well-balanced portfolio will help you to weather market downturns. Also, it will potentially generate a retirement income to cover your living expenses.

Related Articles:

8. Think about the future medical cost.

Health care is expensive. Unfortunately, many baby boomers forget to include it in their financial plan. Medicare will cover most of your routine health-care costs if you retire at age 65 or older. Unfortunately, it does not pay for all medical bills, and it does not pay for long-term care at all.

Underestimating health care expenses or how to pay for long-term care can be a big financial mistake. Think about your future medical cost and find ways to protect your retirement savings.

Consider buying long-term care insurance which can help to pay for home health aides in your late years. If you buy long-term care insurance now, your premiums will be lower than if you wait several years.

It is recommended by many financial gurus to open a health savings account (HSA).

The money you can contribute to HSA is tax-deductible or pre-tax. And any increase in the value of your account is free from federal taxes. But it has to be used for qualified medical expenses otherwise you will be paying income tax and penalties on your contributions.

The 2021 HSA contribution limits are:

$3,600 for individual coverage
$7,200 for family coverage

You can put money into HSA every year until you enroll in Medicare benefits. After that, you are no longer allowed to contribute. However, money that you do not spend will be accumulating in this tax-free account until you need it in retirement.

Related Article:

5 Ways HSAs can Fortify Your Retirement

9. Plan where you will live.

Where you will live in retirement could have a big impact on your living expenses. Consider this option – sell your big house in an expensive location and move to a smaller house or condo in a low-tax state. In this case, your living expenses will be reduced, and you might have some extra income to pay for things you love to do in retirement.

You may also consider staying in your town but moving to a smaller home or condo. That will be more financially manageable while living on a fixed income.

But if you are planning to move to a big city you should be financially prepared to spend more money because retiring in a booming metropolis can be pricey.

Related Articles:

Final Thoughts

I know many people do not bother with New Year’s resolutions. But I find them to be very motivating. New Year’s financial resolutions are a great way to take steps to move towards your new goals.

What is your New Year’s resolution? Do you have any financial goals?

Like this post? Share it.

Holiday Spending and How to Control It

by Maggie 4 Comments

Christmas houses-how to control holiday spending

The holiday season is here. There are so many fun things to spend money on like gifts, decorations, parties, travel, etc.

The stores are decorated with Christmas trees and twinkling lights. TV commercials tell us about the “great deals”. Families and friends are making plans for holiday parties and activities.

With all the pre-holiday noise around us, it gets hard to remember how to control our holiday spending.

Follow these simple steps to avoid overspending, stick to your holiday budget, and keep more money in your bank account:

Create a holiday budget and stick to it.

No one wants to hear the word “budget” when it comes to preparing for the holiday season. But if you do not want to drain your bank account, this is exactly what you need to do.

Before you make a list of all the things you want to buy for the holidays, you need to create a realistic budget. A holiday budget will be helpful to know your limits, so you would not be dreading a moment when the piles of credit card bills will come due in January.

Decide how much you can afford to spend on things like:

Gifts
Holiday cards
Decorations
Holiday meals
Entertainment
Activities
Travel
Donations

And do not forget to budget for additional costs of holidays such as gift wraps, wrapping supplies, stamps, packing materials, and shipping. It all adds to the price of your gifts.

Make a shopping list.

holiday gifts - ho to control holiday spending

Do not go to the store without a shopping list because it is so easy to get caught up in the moment and overspend.

Before going to the store, make a list of your family members, friends, and neighbors and assign a gift budget to each name. Also, you can add to your shopping list a few gift ideas for each person.

I like to use a small notebook for my shopping list with names, gift ideas, and the total amount of money I can spend. With all details listed in my notebook, I enjoy my shopping without worries of getting into new debt during the holidays.

It is a smart idea to start shopping early because you will have more time to shop around and very often get the best price. Moreover, you will have time to compare prices at different websites and retail stores. That gives you more options on what to buy and helps to save money.

Last-minute holiday shopping is stressful and often comes with the risk of paying much higher prices.

Limit your gift list.

Do you have a list of all people you give presents to every year? Do you buy gifts for family members, friends, co-workers, neighbors? Be honest and ask yourself if you really need to exchange gifts with all of them?

If you have a big family, it will be hard to limit your gift list. But if you still buying gifts for relatives you ever hardly see, consider dropping them off your list and just send the holiday cards instead of presents.

Consider a DIY alternative and buy fewer gifts.

glass mugs with chocolate-homemade gifts for holidays

Another way to control your holiday spending is to buy fewer gifts. Change your shopping habits to fit your holiday budget.

With fewer store-bought gifts, you can get creative and make one DIY gift for everyone on your list. It can be homemade cookies or holiday sweets in a glass jar, a framed family photo, or a special ornament.

Here is the list of free or affordable holiday gifts for family and friends:

Homemade treats – put a dozen of home baked cookies in a cute tin or mason jar with a ribbon.
Homemade bath gift set – fill a box with bath salts, soap, candles, matches, and chocolate.
Christmas tea box – fill a box or a canvas bag with your loved one’s favorite tea bags and a cute ornament or card.
Holiday plant box – fill a box with the cute succulents.
Hot cocoa party gift – fill the Christmas-themed mugs with hot chocolate and marshmallow bags.
Christmas potpourri – fill a small glass jar with candy canes, greenery, cinnamon (it will smell like Christmas), and decorate with a festive ribbon.
Ready-to-bake cookies gift – prepare a cute sack filled with a dry mixture of ready-to-bake cookies.
Make a colorful printout of the 10-minute meditation or relaxation guide and wrap it with a ribbon or ornament.
Frame a memorable family photo.
Offer to put actual photographs in a photo album and catalog them.

After all, homemade gifts are a great alternative to store-bought gifts. Most people understand the current state of the country and economy and would be grateful for whatever gift you get them.

Other alternatives to holiday spending – Sacred Santa gift exchange, holiday e-cards, holiday potluck party, etc.

Shop online.

laptop - shopping online during the holidays

Shopping online became so convenient in recent years. The number of people shopping online instead of going to retail stores is growing every year.

Most of us prefer to shop online in the comfort of our homes and avoid the stress of fighting traffic on the roads, and then circle the lot looking for a parking space.

Also, the online shopping brings a lot of advantages if you want to control your holiday spending. The biggest advantage is how easy it makes for you to compare prices.

Check out these deal-oriented websites:

Retail Me Not

e Deal Info

Deal Hunting

You can automatically check prices all over the Web by using the browser extension Honey. Also, this browser will help you find and apply coupon codes to save money.

Honey

Moreover, you can earn cash back on your online shopping by signing up for a website like Rakuten.

Rakuten

Pay with cash and leave the credit card at home.

It is so easy to get caught up in the moment during holiday shopping. You are in a store, you put everything you like in a shopping cart, and it is overflowing.

It will be so convenient to pay with your credit card. But do not use your credit card unless you are sure you can afford to pay your bill off at the end of the month.

Once you figure out your holiday budget, take that money out of the bank account and stop shopping when the money is gone. Paying with cash can help to limit your spending.

It is smart to pay with cash and leave your credit card at home. Which means you will pay only for what you can afford. Ask yourself if you really need everything you put in that shopping cart?

Be selective on holiday gift deals.

Do not fall for all those holiday gift deals. Many of these big deals you find during big sales on Black Friday and Cyber Monday are not actually deals at all. I personally do not like to get into this holiday deal bonanza and prefer to start shopping early.

Recently, I have read that ‘Black Friday is a better time to buy newer, big-ticket items. And Cyber Monday is a better day to shop for tech deals and smaller gifts’

Even we see thousands of deals during the holiday season, it does not mean they are all worth shopping for. Be selective. Create a list of things you are hoping to purchase and make sure to do your research on what you will be buying.

To save money, check and compare prices online before setting foot in a store. The goal should be to buy the best product at the best price.

Resist temptation and know when to stop.

It is so easy to go overboard with holiday shopping. While visiting a mall it is hard to resist temptation and do not buy something “extra”. It could be a little present for yourself, new towels for the bathroom, new luggage set for future travels or nice lunch with your daughter.

If you buy too many “extras” you can blow your holiday budget fast without having any idea where your money went. I found it easier to set a budget for my holiday “extras” so I can enjoy spending the money within that limit.

Once you have bought everything on your shopping list, it is time to go home. I know it is not that easy to resist the temptation to stop at other places and see “what they have on sale”.

But no matter how good the discounts are, you should not be buying things that are not on your list.

Enjoy your holidays.

You do not need to spend a lot of money to be happy. The joy of hosting fancy Christmas dinners, giving expensive gifts, and throwing big parties will soon be replaced with the stress that comes later when you have to pay for it all.

Planning, dealing with a budget, and controlling holiday spending can be frustrating for many people. But what makes holidays memorable is not the money you spend but the time you spend with your family and friends.

Time is often harder to give than anything else. Spending time with your loved ones can be as simple as baking holiday cookies, decorating a Christmas tree, lighting candles, or just watching a movie together.

How do you control your holiday spending? Do you make a holiday budget? Do you prefer to shop online instead of driving to the mall?

How to Prepare a Retirement Budget in 5 Simple Steps

by Maggie 4 Comments

two women with laptop at the table-retirement budget

There is a fear of running out of money in retirement among many baby boomers. As boomer women, we live longer than men, but our savings are not always enough to last long in retirement.

The main goal of retirement planning is to see how to cover your retirement expenses while living on a fixed income. Part of creating a solid retirement plan is to understand your retirement income and expenses. That means you need a retirement budget.

The best advice is to start planning when you are still working and can adjust the numbers. Preparing retirement budget will help to see if you have enough money to retire. If you are still working you have time to add to your savings, pay off debt and change your spending habits.

How do you prepare a retirement budget? I will take you through 5 simple steps.

Step 1. Calculate your retirement income

bees flying over lavender-preparing retirement budget

The more sources of retirement income you have the better off you will be in your golden years. The income in retirement will come from different sources. For many retirees, a Social Security paycheck will be the ONLY income. Other retirees will have an additional income coming from 401(k), IRA, Roth IRA, savings, annuities, dividends, and/or rental properties.

Start with Social Security and find out how much you will get paid once you retire at 62, at full retirement age which 66 or 67 for most of us or delay it until you turn 70.

Social Security website will help you to open an account if you do not have one and find out the size of your guaranteed paycheck.

Social Security website

The next source to consider is pension income. Most Americans do not have pensions anymore. But if you are lucky and have a pension add the estimated paycheck to your Social Security.

Then, look at your retirement accounts including 401(k), IRA and Roth IRA and calculate the balance on all of them.

After you calculated your retirement savings balance, find out how much it will grow in the next 5 or 10 years. For example, you have saved $200,000 on your retirement accounts. If this money grows at 6 percent per year, it will be worth $267,645 in 5 years or $358,170 in 10 years. I like to use an online calculator for estimating my investment portfolio growth:

Smart Asset investment calculator

Using a 4 percent safe withdrawal rule will help to see how much income you can generate from retirement accounts. It would generate around $10,405 or $14,326 a year of income.

Finally, calculate the total of your combined retirement income:

SSB + pension + retirement accounts + bank savings balance + rental income + business income = combined retirement income.

Step 2. Estimate your retirement expenses.

man using notepad and laptop-preparing retirement budget

Step 2 will help to find out how much money you need in retirement by accurately projecting your retirement expenses. It is easier to control your spending than retirement income. And we all know that if we spend less than our monthly income, our retirement funds will last longer.

A simple way to estimate your retirement expenses is to know where and how you spend your money today while still working.

Divide your expenses into 3 main categories:

Essential – need to have
Non-essential – want to have
Unexpected and/or one-time expenses

Label your expenses as either essential or non-essential. It will help to see where your money is going.

Essential expenses – need to have:

Your essential expenses are expenses you cannot live without in retirement:

Mortgage or rent
Utilities
Transportation
Food
Medical

When you retire, you will still have to spend money on these expenses each month. But how it will change in the future when you stop working?

Here are the same budget categories but the cost of it might change when you retire.

Housing – Are you planning to downsize, pay off your mortgage, rent, or relocate to a more affordable place? You have to include the property taxes and maintenance costs if you’re an owner.
Utilities – Cost of utilities might go up or down. If you relocate to a warmer state, include the additional cost of air conditioning.
Internet/ cable/ phone – Are you planning to spend a lot of time at home reading and gardening or some of your hobbies include using the internet? You should include the approximate cost of the internet and cable in your retirement budget. Many people cut costs by switching from cable TV to a streaming service.
Transportation – How your transportation needs will change in retirement? How many cars do you have? Are you planning to downsize your vehicles? Will you buy a new car or a boat? Calculate how much you pay each month for gas, car insurance, and parking and decide how it will change when you stop working.
Food – How much you will spend on food depends on your eating habits. Most retirees start eating out less and prefer to have homemade meals. This budget category expense can be significantly reduced.
Medical – It is hard to calculate medical out-of-pocket expenses, along with premiums for Medicare. Yes, Medicare provides health insurance, but it does not pay for all medical bills and it does not pay for long-term care at all. There is no way to know how much it will cost. But according to Fidelity Investments, a healthy couple can expect to spend on average, a total of $275,000 out of pocket on healthcare expenses in retirement. And a long-term care cost is not included in this number.

Non-essential expenses – want to have:

These expenses are your extras. Make sure to leave room for fun when calculating your future cost of living. You worked hard most of your life while saving and planning for retirement. Traveling, camping, attending a concert, or eating dinner with friends will be part of your fun years. You need to plan for that and include the cost of it into your retirement expenses.

Traveling/ vacations
Hobbies
Entertainment
Gift/ charity

Many of my friends who already retire admitted that every month of their retirement look different than the month before. Some months they spend a lot of time at home. Other months, they are on the road visiting friends and family or traveling abroad.

Unexpected and/or one-time expenses:

Urgent medical expenses
Unexpected car or home repairs
Home improvement
Wedding
Grandkid’s college tuition
Funeral

By including these expenses into your retirement budget, you will minimize the chance to be surprised by these events. You wanted to be sure that you have enough money to cover these expenses. One way to deal with unexpected is to have an emergency fund. Instead of panicking at every unexpected bill, you will have a small pot of money at hand and ready for use.

For our retirement expenses I like to use a worksheet from Vanguard:

Vanguard retirement expenses worksheet.

Step 3. Compare your retirement income and expenses.

architecture - retirement income and expenses

After calculating retirement expenses compare it with your retirement income and see how much you have left over.

Retirement income – retirement expenses = cash flow

Once you stop working you can rely only on the income generated from your savings and Social Security. And if you do not have enough retirement savings, you will have to rely only on one source of income – Social Security. Even Social Security is considered a guaranteed income, but it might be not enough to cover all your expenses.

It is important to have enough income to pay for your monthly essentials. Thus, first look at your Social Security benefits and see how much it will cover. Next, calculate how much money you have to withdraw from retirement savings to cover other expenses.

You can boost your retirement income by downsizing your home or delay retirement for a few years. But those may be not the options for everybody. Most baby boomers will need to reduce their expenses and change spending habits so they can live on their available income.

I calculated that Roman and I will need to have $60,000 a year ($5,000 a month) to cover our expenses for the first 5 years of our retirement. We plan to downsize, sell our house and rent an apartment before we decide if we want to buy a condo. We like to travel and have a long bucket list of places we want to visit. If we do not delay our benefits until age 70, our estimated Social Security paycheck will be $42,000 a year ($3,500 a month).

Thus, we will need to withdraw an additional $18,000 a year ($1,500 a month) from our savings. Many advisors recommend withdrawing 4 percent from savings so your retirement funds last longer. We can withdraw up to $20,000 a year from our savings to follow this rule and feel safe.

If I want to bump that number to 5 percent and withdraw $25,000 a year from our savings, we will spend our retirement funds faster. I would rather adjust our lifestyle and reduce our expenses to fit a safe rule of 4 percent withdrawal than to deplete our funds fast. The goal is to adjust our lifestyle to fit our available income.

Even the whole process looks like a lot of work, remember that calculating these numbers now will make life in retirement much easier.

Step 4. Add inflation and taxes to your retirement budget.

Inflation is real and it will erode the value of today’s dollars over time. Many advisors suggest including 2 or 3 percent inflation to retirement budget. But if you are like me and have no intention of moving your retirement portfolio out of the market, you should expect that keeping money in the market will help to fight inflation.

When you start preparing a retirement budget first thing you want to know is how much income you have available to pay the bills each month. But whatever number you calculated in Step 1 may not be yours to keep in full. Your withdrawals from retirement accounts like 401(k) and IRA will be taxed year after year. And depending on your retirement income so might be a portion of your Social Security paycheck.

Hence, instead of being surprised by taxes, budget for them. Look at your current tax brackets and try to figure out yours in retirement based on estimated income. Then add that money to your retirement budget. You will pay lower taxes in retirement because you will have less income. But you still need to have money to pay taxes every year.

Step 5. Keep updating your retirement budget.

a woman on a suitcase-retirement expenses

I know that my retirement budget is not perfect and needs to be updated. But it is a starting point that allows me to learn how much income Roman and I need to replace when we stop working.

Budgeting for retirement is not a do-it-once-and-forget exercise. Retirement budgets are living things that need periodic checkups. Once you retire you need to keep updating your spending, income, and withdrawal numbers, because spending in retirement could go easy out of hands.

Also, you need to keep an eye on your retirement portfolio growth and make sure that all is going according to your plan. Otherwise, you need to adjust and fit your lifestyle to available income.

Final Thoughts

None of us wants to spend our fun years worrying about money. Everyone wants to enjoy retirement. Follow these 5 simple steps and start preparing your retirement budget. It should help you to stay on track financially so you can enjoy your fun years and avoid stress.

Do you have a retirement budget? Have you thought about preparing a retirement budget? Share your ideas with us in the comments below.

Have you enjoyed this post? Make sure to hit that sign up button for more blog posts like this!

Disclosure: This information is only educational. The intent if this post is to provide a simple guideline for an extremely complicated matter. I am not providing any specific financial advice or recommendations to any of my readers.

6 Smart Ways to Make a Holiday Budget & Stick to It

by Maggie 4 Comments

a child in red dress decorates Christmas tree - holiday budget

The holidays are here, and you may have a lot of expenses coming up. There are so many fun things to spend money on during the holiday season.

The holiday season already started with Halloween festivities and shopping for home decorations, costume parties and bags of candies. But the big money spending holidays like Thanksgiving and Christmas are coming close.

According to the statistics, despite the covid-19 economic toll, consumers are still spending above the five -year average on gifts. In 2019 the average American spent around $900 per person on holiday gifts.

And according to a survey, American consumers took on an average $1,325 worth of holiday debt in 2019. That is a lot of debt to take on for holiday spending.

And, this doesn’t include other holiday spending such as food, decorations, and activities. There are also other expenses many people forget to budget for, like stamps, cards, shipping, etc.

If you don’t want to accumulate new debt during the holidays, you need to allocate some money for decorations, gifts, parties, and maybe travels. The best way to do that is to make a holiday budget and then stick to it.

In this post I want to share the smart ways to create a holiday budget, save money on holiday shopping and avoid getting into debt:

1. Set a holiday budget and know your limits

If you don’t want to accumulate new debt during the holidays, you need to make a holiday budget. Before you decide what you should spend money on, you need to figure out how much money you can spend. The smart way to prepare for holiday spending is to look at your basic budget spreadsheet.

First, look at your monthly take-home pay and then subtract your monthly expenses, and calculate what is left. The number on your spreadsheet or calculator is how much you can afford to spend for the holiday season without getting into new debt.

Now you know how much you can comfortably spend on things like clothes, gifts, parties or travels. Don’t forget to add all your other holiday expenses like:

Decorations
Food
Postage and shipping
Charitable donations
End of year tipping

2. Make a list of people

table decorated for Christmas dinner -holiday shopping

After setting up a budget for your holiday spending, the next step is to make a list of your friends, family members, co-workers, neighbors and assign a gift budget to each name. In addition to that, you can put on your list a few gift ideas for each person within your budget. Keep the assigned dollar amount within your budget. But leave a little extra wiggle room if numbers are not working.

You can use an Excel spreadsheet or a small notebook for a detailed list of your holiday spending, including names, gift ideas, the amount of money you can spend and even the ideas where to find the gift. Once you have these estimates and brainstormed the gift ideas it will be easier to see your limits and not deplete your wallet during the holiday season.

3. Do your research and find the best deals

One of the keys to smart holiday shopping is research. Doing research on the best deals is important. We are bombarded with sales promotions, special purchases, buy-one-get-one-free deals and more. You want to know when and where the best deals will be offered.

During the holiday season, retail stores are offering great deals. Before making any purchases, check prices at multiple stores. To save money, search and compare prices online before setting foot in a store. When you come shopping in a retail store, use your research information and take advantage of the deal if you see one.

Many people prefer to shop online these days and that number grows with every year. So, if you want to skip the store and shop online check out a few deal-oriented websites:

Retail Me Not

Deal Hunting

Hot Lowest Price Deals w/ Free Shipping

The benefits of shopping online are not limited to saving on gas and parking fees. Let’s face it: very few of us enjoy holiday shopping. Sometimes it’s very hard to find pleasure in heading out to find gifts for our loved ones and dealing with crowded malls, long lines, and pushy shoppers. I found it easier to shop online in the comfort of my home day or night. And don’t forget to look for free shipping offers, if you plan to order online.

If you travel, many online websites offer great gift selection, and your items can be sent to your travel destination. That means you won’t have to worry about traveling with bulky presents.

4. Start shopping

table with women hands working on computer w/ holiday decorations - holiday budget

You set up a holiday budget, you made a list and have done your research. Now it’s time to start shopping with your list in hand. It’s a good idea to start shopping early so you can get the best prices. If you do last- minute holiday shopping, very often you will risk paying much higher prices.

Make sure that you keep a track of your spending and stay within your budget. Use the same excel spreadsheet or a notebook with names, gifts and price ideas for tracking.

I would recommend adding a column to your spreadsheet and name it “planned spending” and “actual spending.” Total up “planned spending” to see how much you can afford to spend over the holidays. Then keep adding the cost of gifts to your “actual spending” column. This way you will keep track of your spending. You should cut back or limit gift items when you see spending more and getting out of your budget limit.

Another smart way to save money during the holiday season is to search your home for the ribbons, wrapping paper, holiday cards, decorations or even gifts you bought on sale last year.

You may even find the gifts if you bought them after the holidays, stashed away and forgot to retrieve. It happened to me several years ago, when I found a few gifts and left it forgotten in a storage closet. After that, I have bought a big plastic bin where I keep all holiday decorations and last year’s gifts and created a designated space for holiday items, so I don’t lose track of them again.

5. Cash or credit cards

Recently I have read that “cash makes it easier to stick to your budget”. The idea behind that statement was to label envelopes with the name of the gift recipients and other spending categories. Then put the cash in each envelope, matching the amount with your planned budget.

This method sounds like an old fashioned to me, but it will be practical for anyone with careless shopping habits. With only limited cash available and no credit card to use, you cannot get out of hand with your spending. It’s easier to stick to your budget by paying cash.

So, pay cash if you want to avoid overspending. But I must admit that I never shop with cash and prefer to use credit cards. However, Roman and I are responsible credit card users. We always pay off our balance in full to avoid getting charged high interest. Besides, most of our credit cards offer cash-back rewards, so I feel that I still make money while shopping.

If you are planning to use credit cards, it’s recommended to shop with no more than 2 credit cards. You will be better off with low-interest credit cards, not the expensive department store cards. The more cards you use, the harder it is to keep a track of your spending.

6. Alternative gifts

table with eggs, baking dough and cookies - holiday budget

The winter holidays are the most expensive time of the year for many people. On average the shoppers will spend around 730 billion of hard-earned money between November and December.

What to do if you want to enjoy your holiday season without overspending or getting into new credit card debt?

What other options if you don’t have enough savings or extra cash available to cover your holiday expenses?

There some ideas of alternative gifts that will come handy. Instead of buying individual gifts, set up a Yankee Gift Swap or Secret Santa. Gift swaps and exchanges at holiday parties help to trim down the cost of holiday spending for every guest.

Other ideas – potluck dinner with friends and handmade gifts. Homemade or handmade gifts are great for any occasion. I have a friend who gives us beautifully decorated glass jars with homemade cookies for Christmas and New Year. She has a big box of saved holiday decorations and likes to make and decorate her gifts for each occasion.

Or you can give actions instead of physical gifts by babysitting for a stressed mom, cooking dinner with a friend, baking fresh out of the oven cookies with your kids or grandkids or simply buying and decorating a Christmas tree together with your family.

After all most of us cannot remember the gifts we received last year or year before. But we all have sweet memories of family’s favorite holiday traditions.

100 Free Gift Ideas Your Friends Will Actually Want to Receive by Nicole Dieker

Final Thoughts

The holiday season is here. It feels that holiday shopping starts earlier every year. Retail stores have barely put away their Halloween decorations before they fill the shelves with Christmas gifts. Festive holiday ads on TV, brightly decorated streets and shops would make you believe that this season is the best time for shopping. It’s easy to get overboard on holiday spending unless you know your limits.

Now is the best time to put your holiday budget together, make a list of gifts, check the prices and start shopping.

Have you planned out your holiday budget? Share in comments your ways to save money on holiday shopping.