Budgeting Advice from the Experts — for the Holidays and Beyond

It’s a common worry. The holidays roll around and there’s pressure to spend money you don’t have. In fact, a survey shows more than half of Americans expect to need a short-term loan to pay for their holiday celebrations.

But the new year can offer a fresh financial start.

Dr. Jim Burroughs, a professor at the University of Virginia’s McIntire School of Commerce, offers these tips to stay out of debt and get a head start next year:

On going into debt during holidays:

AVOID CREDIT CARDS FOR HOLIDAY SPENDING LIKE THE PLAGUE! It’s a perpetual cycle of being behind. If you have to charge it, you probably shouldn’t be giving the gift, he says.

Burroughs says overspending is a major problem because we don’t typically plan ahead and budget for holiday gift spending in December, despite it being a major intermittent expense. Ideally one should determine whom they wish to give gifts to, and budget for each individual on their list, he advises. This should be a line item in the budget and if necessary funds should be set aside 2-3 months ahead of time.

Plan a few months ahead

If you can’t budget and pay for the gifts you will give in about two to three months, then you probably need to recalibrate your giving levels or the number of people you are giving gifts to. Going into debt is a TERRIBLE idea, he says. You pay 15-20% on a credit card and interest rates are likely to go up. You are likely to still be paying for these gifts when next year’s holiday giving season arrives and a new cycle of spending pressures is upon you.

COVID is still a wild card

Add to this the uncertainty of COVID, and carrying debt for something like this is a very dangerous idea, Burroughs says. What if a new variant of COVID emerges and the economy tanks again? Being vulnerable over gifts is just not smart. That said, I suspect the majority of people don’t pay for gifts using their debit card, they do it with a credit card intending to “pay it off quickly” (which often doesn’t happen). Don’t spend money you don’t have.

Make a budget

It may sound like over-worn advice but create a budget. Of course, creating a holiday budget if you don’t have a budget for the rest of your life is a bit absurd. Create a budget that addresses the following:

Monthly revenues (employment and any other)


  • Monthly bills (including rent/mortgage)
  • Household spending (food, haircuts, etc.) (can be one overall number)
  • Discretionary spending (entertainment, eating out, etc.)
  • Short-term savings (under one year that goes into the bank savings account)
  • Medium term savings (1-5 years) [see how to handle below]

Max out retirement

Max out your retirement contributions with your employer if you can and if there is a match. Make this contribution automatic and before you even receive your paycheck (so these long-term savings are never even “in” your budget). You will never miss this money. Burroughs recommends approaching 529 plans the same way as long-term savings that are done automatically “pre-budget.”

Create an emergency fund

Burroughs says he’s not a big fan of a “six-month” emergency fund. He says putting that much money into a bank savings account, where the interest you earn is negligible, is a waste.

He recommends keeping enough in a checking account to meet your immediate obligations, and enough in a bank savings account to cover about four weeks’ worth of emergency or unforeseen expenses.

Set up a brokerage account

Burroughs recommends setting up a cost-efficient taxable brokerage account (there are lots of good ones out there, including Fidelity, Vanguard, T. Rowe Price). Keep a “medium-term” savings contribution set up to occur automatically monthly a day or two after you get paid. But set up the withdrawal function to be manual. Automatic in, manual back out, he says. Otherwise, this will soon function like a checkbook (i.e. you’ll spend it frivolously).

By using this strategy, you can put this money “to work” when you don’t need it, but it is still accessible in an emergency. If you are disciplined this is where most of your money should be in this day and age, Burroughs says.

Burroughs recommends that within this brokerage account, put 20%-30% in very conservative investment instruments (money market, short-term investment-grade bonds, treasuries) to cover any shorter-term obligations, for example, in case you need some money within the next year. He then recommends putting another 20-30% in equity stocks (he cautions to stay away from individual stocks unless you have a lot of time to research them.) Stick with a low-cost, well-managed diversified stock mutual fund, including a market index fund. This will cover any “five-year-out obligations” and help generate growth.

He advises that you keep the rest in bonds and similar instruments (again pick a nice diversified bond fund that has a mix of corporate, treasury, real estate backed, etc). If you want to put 10% or 15% into a REIT or real-estate mutual fund for diversification, that also will work.

Weigh your risk tolerance

Depending on risk tolerance, Burroughs’ recommendations are a solid five-year plan. If you want to be a bit more aggressive, pare back the money market and ramp up the stocks a bit, or if you have some big obligations that are likely closer to only a year out, then ramp up the conservative portion and dial back the stocks. Either way, you need to approach this differently than long-term retirement savings (which depending on your age could be 60-90% equities).

Earmark some for special purposes

If you want to earmark part of this money for special purposes like holiday gifts, a down payment on a home, go for it, he says. Come Dec. 1 you can manually withdraw $X amount for the holidays (and then pay in cash). This is a better way to save, he says.

Keep your savings out of reach

Any time your bank savings gets above more than about one extra month worth of your budget I would transfer the excess to your brokerage account. It puts it to work and is away from temptation.

Follow this discipline, Burroughs says, and you will be amazed at how much money you will soon have, including for holiday gifts.

Planning for the holidays

Dr. Michael Kinsman, Emeritus Professor of Finance and Accounting at Pepperdine University’s Graziadio School of Business and Management, offers the following advice on holiday spending:

Holidays are about family and caring, Kinsman says, and although expensive gifts are ways of showing caring, there are other ways of showing your love and respect on an appropriate budget.

Thoughtful gifts (even inexpensive ones) are the best way to express that love, he says.
Families sometimes get into a competition regarding gifts, with many thinking “I have to give you an expensive gift because you always give me one.” Kinsman recommends sitting down with the people you give gifts to and explaining your love for them and your desire to have meaningful, not expensive, gifts is the best way to avoid the awful cycle of spending and regret.

He says you will be surprised at how much those you release from giving expensive gifts appreciate it. They will particularly appreciate the trust you show them by sharing your ideas.

On staying on track

The best way to plan is to actually have a written plan, Kinsman says. If you know how much you can afford to spend (in total) on holiday activities, you can then allocate those expenses across the people you are giving gifts to and the events that you will attend and host.
If plans are not written they are not plans, they are wishes. And if wishes were horses then…

Getting a head start for 2022

Read the above and act on it, Kinsman says. Anticipation (of financial stress) is your friend if, and only if, you take steps to make that stress disappear. You do that by preparing a written financial plan (a budget) that anticipates the amount you need to fulfill your (reasonable) dreams. Little changes (do you really need that $5 cup of coffee every day?) can make a huge difference over a year.

More advice from experts

What’s the one piece of advice you’d give to anyone planning to go into debt due to holiday spending?
Inflation is the highest in 30 years, and credit card debt is rising sharply. It is understandable and much needed to enjoy the feeling of finally leaving the pandemic behind. Nevertheless, there are ways to relax and reconnect without jeopardizing our future and even our relationships. We can have fun without getting into unnecessary debt as interest rates are about to start increasing to control inflation.

Dr. Laura Gonzalez ― Associate Professor of Finance, California State University, Long Beach

Do not do it. If you do, create a budget for the upcoming months that allows you to pay this debt off and not carry it for an extended period of time.

Dr. Bradley Stevenson ― Associate Professor of Finance, Bellarmine University

Don’t. One exception is that you are in the process of receiving extra income or gift soon and the amount is large enough to pay off the debt and the associated fees and interests.

Dr. Rui Yao ― Professor, Personal Financial Planning, Division of Applied Social Sciences, University of Missouri.

What steps, in your opinion, can people take to help them stay on track with budgeting this holiday season?
Make an effort to pay off a portion of the debt each month. Devote a portion of your take-home pay to regularly make payments on the debt. This would reduce the loan amount borrowed and save on future interest costs.

Dr. Ralph Lim — Associate Professor of Finance, Jack Welch College of Business, Sacred Heart University

First, make a budget. Second, communicate with your family and loved ones early and clearly. Let them know “This year, I want to celebrate the real meaning of the holiday season. I plan to limit my spending and invite you to join me. Let’s celebrate the season with simple gifts, and create memories with gifts of time spent together baking, playing games, and scavenger hunts.” Other options include suggesting homemade gifts; vintage gifts from personal possessions, estate sales, Goodwill, or yard sales; gifts directed to preferred charities, or a Secret Santa pool with a spending cap.

Dorothy Kelly ― Personal Finance Lecturer at University of Virginia McIntire School of Commerce

Consider alternative gifts, such as volunteering or handmade goods, as a way to save money during the holiday season. Also, keep your eye on the price and consider using coupons and coupon codes whenever possible.

Dr. Karen Xie ― Associate Professor of Service Analytics, Daniels College of Business, University of Denver

What’s the most important piece of advice you have to help get people started on a savings plan for next year’s holiday season?
Start immediately and do not overreach. It is better to save less each week but stick to your savings regimen than save too much and find you cannot maintain the savings schedule.

Dr. Larry Chiagouris ― Professor of Marketing, Lubin School of Business, Pace University

Instead of buying coffee, put $5 per day in a jar. At the end of the year, you will have $1,825. If you usually go out to lunch once a week, put your lunch money in the jar and go out once a month. If you spend $25 on lunch, you will have an additional $900 at the end of the year. That with the coffee money gives you $2,725. Find other areas of your spending that you can use for saving instead.

Dr. Deborah Y. Cohn ― Interim Dean, School of Management, New York Institute of Technology

Create a special fund in your local bank (or credit union or other depository institution). Make regular — say, weekly — deposits into the fund, even if the deposits are (at first) relatively small. Make this a habit. Think in terms of “Pay yourself first!”

Dr. Lawrence White ― Professor, Stern School of Business, New York University

Scroll to Top