This is the most wonderful time of the year – to prepare your holiday budget.

No joke. Prepping your holiday budget in September helps avoid a debt hangover in the new year. The world’s largest retail trade association tracks holiday spending annually. And every year, that number creeps up a little more.

The average American dropped roughly $900 on the winter holidays in 2023, and are projected to do the same this year, says the National Retail Federation’s data.

You don’t have to be a total Scrooge to save money during the holidays. Just plan your budget now to avoid saying ‘Bah Humbug!” when the credit card statements hit the mailbox in January.

You can do it by following these three simple steps…

1. Create a holiday spending plan

The first step to a budget is putting a plan on paper. Every year, you buy gifts for family, friends, and coworkers. List everyone you normally buy for and set a spending limit for each.

Are there certain meals and decorations you know you’re going to need? Maybe you’re traveling this year. Put it all in writing. Any expense you can imagine should be included in your holiday budget.

There are plenty of ways to make a budget. You can go straight to the app store on your iPhone or Android. Just search “free budgeting tool” and take your pick. Maybe you’re better planning with a spreadsheet. In that case, use Microsoft Excel or Google Sheet.

For the sake of keeping it simple, how about good ol’ fashioned pen and paper? However you choose to make a budget, the same rules will apply:

• Set your spending limit
• Jot the person or item you need to purchase
• Note next to it how much you plan to spend on each

2. Set up a savings fund for holiday expenses

Now you know what you’re spending on who. It’s time to ensure you have the money when you plan to start buying. Financial institutions offer savings accounts specifically for holiday spending – sometimes referred to as a Christmas Club account.

They allow you to save throughout the year to withdraw around the winter holidays. Like any other savings account, it may come with fees and a minimum deposit amount. There are some conveniences to using a holiday savings account:

• You can set automatic transfers from your savings account
• Depending on the financial institution, they may offer interest on your savings
• They may offer additional perks and rewards  

A holiday savings account isn’t necessary, though. You can use a pre-existing savings account or go as simple as stashing cash in an envelope in your drawer. All that matters is that your savings strategy is safe and practical for you. 

3. Find ways to earn extra income before the holidays

Right now, times are tough for a lot of folks. The amount you’re earning from your job may not equal the holiday budget you’ve set. Another beauty of planning early is you can also figure out how to bring in more cash for the holidays.

Your strategy to earn more income can vary depending on your current career. Does your current employer offer overtime for additional shifts? Can you freelance on the side? Is it worth picking up a second job at night?

There are so many options to earn extra money from a side hustle these days. From driving Uber to pet sitting with Rover, you can earn cash on your nights and weekends. Ask your boss or do a little Internet research to find practical avenues to earn more money.

Whatever your strategy is doesn’t matter much. As long as you stick to the goal of avoiding credit card debt from the holidays.