How often have you fretted at the start of the holiday season, wondering how you will pay for everything?
Almost all of us have been there.
The variety of ways you can watch your money getting sucked up during the holidays might feel overwhelming, from gifts to decorations to parties, which is why you need a holiday fund. However, your ultimate desire to bring joy to your close ones should not force your bank account to suffer, which is why we are taking on this holiday fund discussion.
- What is a holiday fund?
- How to create one?
- What are the advantages of a holiday fund?
Read further to find out why having a holiday fund is an all-year-round good idea.
What exactly is a Holiday Fund?
This includes Christmas, Kwanzaa, Hanukkah, birthdays, Halloween, and any other day that comes to mind. Building a holiday fund throughout the year ensures you are not short on funds when the holidays arrive.
So far, so good, but why should you set up your own holiday fund?
The Advantages of Creating a Holiday Fund
The most significant advantage is the peace of mind that comes from knowing you have enough money to spend on whatever you choose throughout the holidays.
The most significant advantages to setting up a holiday fund, revolve around the facts that:
- It is an excellent method to stay out of debt during the holidays
Over the holiday season, more than one-third of Americans spent more than they could afford and went into debt. You have no obligation to join them this year. However, a holiday fund might help you avoid overpaying throughout the holidays.
A Christmas fund, in addition to a holiday budget, can help you control your expenditures. You may prevent getting into debt this holiday season by knowing precisely what you can spend and saving aside money for those needs.
- It prevents you from using your emergency savings
Hopefully, you have an emergency fund in which you have set aside money for, you guessed it, emergencies. Generally, holiday spending on gifts and parties does not represent an emergency. This is why you should avoid using your emergency money to cover holiday expenses.
A separate holiday fund from your emergency fund will allow you to avoid using your emergency fund for non-emergency needs.
- It gives you less stress during the holidays
You may prevent the stress of last-minute shopping and overpaying if you prepare ahead of time and save up for your purchases. Then, when you have money aside for the holidays, you can relax and enjoy the season rather than worry about money. The holidays may be stressful in various ways; there is no need to add financial worry to the mix.
Can you still have a holiday fund if you are in debt?
The short answer is yes. You can save for the holidays even if you are currently in debt. While everyone’s relationship with debt is unique, saving (and even investing) is perfectly acceptable when you are in debt.
You can continue to pay off debt and save for the holidays with the appropriate technique and a decent budget. You may set a reduced budget for holiday expenditures and save just enough to meet that little outlay.
Consider deferring excessive expenditures and larger splurges until you are debt-free. But there is no reason why you cannot save and spend on your loved ones during the holidays while working on debt repayment. At the very least, you may rest assured that you will not add to your debt throughout the holiday season. That is a significant financial achievement in and of itself!
How to Build Your Holiday Fund
If you are feeling convinced that you should start saving on your holiday fund, here are our most remarkable saving techniques to get you started. Following those should help you become financially prepared for the holidays by the time they arrive:
#1: Start by planning a holiday budget
A holiday budget is an essential component of a holiday fund. Knowing how much you intend to spend on holidays throughout the year is critical so you can save accordingly. It only takes two simple steps.
- Make a list of what you intend to spend your money on and whom you intend to buy a gift for, and then decide how much you want to pay.
- Include how much you intend to spend on extra holiday expenses such as parties, decorations, and entertainment.
#2: Set up a separate account for holiday expenditures
Do you know what a Christmas Club is?
It is a long-standing concept that involves an automated saving account solely for Christmas shopping. While some credit unions offer Christmas Club accounts, you do not need one to enjoy the benefits. Instead, you can open a checking or savings account just for holiday savings on your own (or with the help of a Christmas Club). Then, you can send anything you decide, plus the additional income you earn, directly to this account.
You can also set up automatic deposits (see the next tip below). By the time the holidays arrive, you will have a dedicated fund to draw from for all of your expenses.
#3: Establish a savings target and an automatic deposit
Once you have established how much you want to save and by when you will have a target. Setting up an automatic deposit directly into your holiday fund is the most effective way to achieve this goal.
An automated deposit has the advantage of never touching your regular bank account. It goes directly into your holiday fund to be saved until you need it. If you get a weekly or biweekly paycheck, you can request that a set amount be deposited into your Christmas fund.
#4: Consider a credit card that offers cashback
If you are looking for a new credit card (and, ideally, if you can pay off the bill in full before the end of each month), a cashback credit card could be the ideal way to build up your holiday fund. When you use a cashback credit card, you get your money back. Depending on the card and the spending category, they may give you 1%, 2%, or even more on everything you buy.
You can put your cash-back credit card earnings into your holiday fund. That kind of additional money can rapidly build up!
#5: Begin a side hustle to supplement your holiday funds
If you want to save for the holidays, a side hustle is one of the most profitable ways to do so. The beautiful thing about a side hustle is that you can make it as big or as tiny as you desire. You can, of course, start a completely new business on the side, but you can also start small, such as with pet sitting or the occasional freelance writing article.
Everything additional you make from your side hustle, like money from a cashback card, can go straight to your holiday fund. Before you realize it, your fund will likely be more than what you require for holiday spending!
#6: Try out a no-spend challenge
Cutting back in other areas is another clever technique for establishing holiday money. Why not try a no-spend challenge for a month to spice things up?
You can choose to cut back on just one type of spending (such as clothing) or go all the way and cut back on all non-essential spending. You are free to set your own rules.
Remember that the less you spend, the more money you will have at the conclusion of the challenge to put toward your holiday fund!
In a nutshell
Whatever your current financial condition, you can start a holiday fund anytime. Remember that saving money is always a good idea.
Having money stacked for holiday purchases has no real disadvantages. If you do not use all the money you have put in, you can place it towards something else. Roll it over for next year’s spending, or spend it on yourself. It is entirely up to you what you do with the remaining funds in your account!
Do not put it off any longer; start your holiday savings immediately and be ready for whatever holiday bills arise!
