Holiday Spending vs Homebuying: How to Balance Your Budget

With the holiday season comes celebrations, traveling and gathering with loved ones. While this is a treasured time of year for many, it can be straining on a budget. Increased spending on gifts, decorations, parties and travel costs are to be expected during this time. If you’re planning to buy a home soon, balancing this seasonal increase in expenses with your long-term savings goals can be tricky. Striking the right balance is tricky, but can be accomplished with a few practical strategies to help you enjoy the holiday season while staying on track for your future home purchase.

Since the added expenses of the holidays are to be expected, they can be prepared for. Budgeting for these expenses and adjusting savings plans ahead of time can help you avoid added credit card debt or depleting the savings you’ve set aside for your down payment or closing costs.

Even seemingly small expenses can have a larger impact on your budget than you might expect. For example:

Credit card debt: Charging Holiday expenses to a credit card can result in high-interest rates if not paid off quickly. Carrying a balance can impact your credit score and debt-to-income ratio – two key factors lenders assess when you apply for a mortgage.

Savings depletion: Spending holiday bonuses or dipping into your savings may leave you with less cash on hand for a down payment, closing costs, and moving expenses.

Unnecessary purchases: During the holiday season, sales on big ticket items are common. While you may feel tempted to impulse buy a new car during a holiday savings event or splurge on a new flat screen TV because it’s on sale, these costs can pull you further from your savings target.

Tips for Balancing Holiday Spending and Savings for a Home

With some proactive planning and budgeting, you can enjoy the holiday season while still keeping your home-buying goals in mind. Here are some practical tips to help you stay on track.

1. Set a Budget and Stick to It

Before the season kicks off, set a realistic holiday budget based on what you’re comfortable spending without affecting your savings. Consider making a list of potential holiday expenses, allocating a specific dollar amount to each category and committing to staying within those limits. It can be helpful to adjust your overall budget during the holiday season to stay on track. Identify non-essential expenses such as dining out, subscription services, or entertainment that you can reduce temporarily to free up funds for holiday spending without dipping into your home savings. Tracking your spending regularly will help you stay mindful of your budget.

2. Prioritize Experiences Over Purchases

The holidays are about spending time with loved ones, and memorable experiences can be as fulfilling as material gifts. Instead of splurging on expensive presents, plan low to no-cost activities like having a holiday movie night, enjoying a game night with family or friends, or going ice skating. This not only cuts down costs, but also strengthens relationships, helping you create lasting memories without straining your finances.

3. Consider a “Cash-Only” Approach

Using only cash or a debit card for holiday expenses can help keep spending in check. Limiting the use of credit cards prevents holiday debt that can impact your creditworthiness. By avoiding high credit card balances, you can protect your credit score, which is essential for securing favorable mortgage terms.

4. Use Holiday Bonuses Strategically

If you receive a year-end bonus, think of it as a way to accelerate your home-buying savings. While it’s tempting to use these funds for holiday expenses, putting a portion directly towards saving for your future home or towards paying down other debts can help you get closer to achieving your home buying goals.

5. Look for Creative Ways to Save on Gifts

Holiday spending doesn’t have to break the bank. Consider crafting homemade gifts, baking treats, or finding budget-friendly, meaningful gifts that won’t impact your home-buying plans. By choosing thoughtful, inexpensive presents or organizing a “Secret Santa” exchange with family or friends, you can keep gift costs low and still spread holiday cheer.

6. Keep Your Goals Top-of-Mind

Remember, your goal of homeownership is within reach. Set reminders about your savings goals and visualize the home you want to buy. It’s a simple way to stay motivated and make mindful spending decisions.

Staying Financially Healthy Through the Holidays

With a little planning, you can enjoy the holiday season without derailing your home-buying goals. Prioritizing experiences, setting a clear budget, and adjusting your monthly spending can make a big difference. Balancing holiday joy with financial discipline isn’t always easy, but by employing the right strategies, you can experience the joys of the holidays and of homeownership.