By Paula Pant, WiserAdvisor.com
Many people start thinking about their holiday plans -- and their budget for those plans -- around October or November, just a month or two before they need to start traveling and buying gifts.
But here's a better alternative that can keep your holidays on-budget and stress-free:
Step One: Add a New Line to Your Budget
In theory, here's the best way to budget for the holidays:
Calculate how much you expect to spend on all holiday expenses -- from gifts to travel to meeting friends for dinner and drinks -- and divide that amount by 12 to figure out your monthly savings goal.
While you're calculating your total holiday budget, consider both the obvious things (airfare, gas, hotel) as well as the incidentals, such as meals, pet care and luggage fees. Review last years' receipts or credit card statements for an overview.
Airfare can be an especially hard expense to pin down, since plane fare can vary widely from airline to airline and date to date). Look at the amount you spent last year, or scan this years' current ticket prices (for your intended date) and add an additional 25 percent onto the fare as a "buffer."
Step Two: Start Now
The reason we said "in theory" above is because it's too late for you to "divide by 12." Autumn is a little late in the game to start planning for this year's holidays, but don't despair -- you can still get an extra month or two of a "headstart" on your holiday savings.
Starting now, add a new line to your budget for "holiday savings" and set money aside each month for that purpose alone. Calculate your total holiday expenses, and then divide by 2 or 3, depending on how many months remain until you get hit with the bills.
Come next year, you'll have a full 12 months to master this strategy, and you'll be able to nonchalantly pat yourself on the back (along with those people who get their Christmas shopping done by July.)
Step Three: Embrace Frugality
Are you having trouble coming up with room in your budget for holiday savings?
Look for ways you can cut back on your current spending. Can you eat out less, carpool with coworkers to cut back on gas costs, or cancel your cable TV? You could also find a new source of income, such as taking on a second job, picking up a few babysitting, yard care, freelance or consulting gigs, or selling some unwanted belongings on eBay.
Step Four: Open a New Savings Account
If you're on the ball, you should already have other savings-related lines on your budget -- such as money you're setting aside for emergency savings, your family vacation, future car-related expenses, etc.
Keep your holiday money separate from these savings so you don't accidentally dip into it before the holidays come. Open up a new savings account earmarked for the holidays so you're not tempted to touch the amount that you've saved. You can also clearly track your progress.
Step Five: Automate It
To avoid any human error in this strategy, set up automatic transfers from your checking account to your holiday savings account at a set time every month (or every pay period).
By sending the money directly to savings, you prevent yourself from spending it on other things. You'll also reduce your own stress factor since it's one less thing you'll have to remember to do yourself.
Step Six: Reduce Your Travel Costs
To make sure you stick to the budget you set for yourself -- and maybe even have a little of that money left over for next year -- don't forget to try to find ways to reduce your overall travel costs when it's time to start planning your trip(s).
Consider booking a flight for non-peak days (for instance, try to avoid Christmas Eve or the day right before Thanksgiving). If you're traveling a short distance, consider driving or taking a train. Look for "rideshares" or carpools, in which you can split the gas.
Use travel comparison sites to locate the best deals for your destination. Compare non-stop flights to flights with one layover if you don't mind killing a little time in an airport (it can save you anywhere from 20 - 60 percent). Take advantage of membership and rewards programs you belong to (or could join) to earn things like frequent flyer miles or travel discounts.
With this simple strategy, you can finally enjoy the holidays the way you're supposed to -- by spending time with friends and loved ones rather than spending time stressing over how you're going to cover the costs.
Bonus Tips: For Retired Folks
If you're retired, you may be living on a limited or fixed income and may not have a lot of "wiggle room" in your budget. Here are some additional tips to help you budget for holiday travel:
- Compare prices on sites like Priceline, Hipmunk and Skyscanner to see what dates have the cheapest airfare. You may have a limited income, but you also have flexibility others don't. Since you don't need to worry about booking a ticket around your work schedule, you have the freedom to fly on low-demand days, which can save you a bundle.
- Call hotels to ask if they offer senior discounts.
- If you're an AARP member, you're eligible for rental car discounts and airfare discounts.