Need to rein in the Christmas budget? Here’s how

Alice Haine, Personal Finance Analyst at Bestinvest, the DIY investment platform and coaching service, comments:

With just a month until Christmas Day, those who haven’t considered how they will pay for the festivities may now be in a state of panic when you consider the effect the cost-of-living crunch is having on Britain’s personal finances.

Bank balances are already creaking under the strain of rampant inflation, surging food and energy prices, increasing borrowing costs and the highest tax burden since the Second World War, so throw the festivities into the mix along with a drawn-out recession and the fear is that budgets will get blown by the traditional season of overindulgence.

A typical household spends almost £740 or 29% more in December than their average monthly expenditure of £2,500, according to the Bank of England while a 2021 YouGov poll found the average person expected to splash out £1,108 during the festive season last year.

Those figures are likely to take a hit in 2022 when you consider 60% of Britons plan to curb Christmas expenditure to balance the books, according to a separate October YouGov poll, with more than half cutting back on buying presents and a third slashing their spend on food.

While reining in the budget may dampen the festive spirit for some, there are ways to ensure your holiday season is not as bleak as the rest of the winter. Here’s a last-minute guide to keep your Christmas spending on track:

For those that don’t have a dedicated Christmas fund built up over the course of 2022, take a close look at your bank balance. With inflation at 11.1% and many people facing much higher mortgage repayments as borrowing costs rise, people need to be realistic about what they can afford this year.

To set a budget, first plan out exactly what you need to buy in terms of food and drink for festive social gatherings and the big day itself, as well as presents for family and friends, clothes and accessories for parties, transport, accommodation, trees and decorations.

Then set as conservative a figure as possible across six categories: 1. food and drink; 2. presents; 3. clothes; 4. transport and accommodation; 5. going out and 6. decorations, and then check how much you saved up in advance or have sitting in your current account. If your aspirations and reality don’t match up, trim your forecast for each category until you have a more manageable figure.

If you need to be more stringent, ditch some of the categories altogether - such as clothes and decorations – as you can simply reuse last year’s collection of festive jumpers and baubles, particularly if you have a fake Christmas tree. With the cost-of-living crisis potentially at its peak, no one is expecting an overly lavish Christmas this year so there’s no shame in adopting a more frugal approach.

Once you have a clear idea of what you can afford to spend, you can then hunt out the best deals to match your budget without tipping your current account into overdraft or running up excessive credit card debts. If you do your gift shopping on the high street, arm yourself with a list and stick to it to ensure you don’t go stray and buy items you don’t need.

For those with children, make it clear that the cost-of-living crisis also caps how much Father Christmas can spend on presents. This will set boundaries on their present wish list as Santa needs to be frugal too to ensure everyone gets a present this year.

Now that you are armed with a set budget for presents, make sure your extended family are also on board by setting a price limit on gifts. If you are really struggling this Christmas, it’s important to be honest. You might have family members with much bigger budgets, so by being transparent, it removes the pressure to buy gifts you can’t afford.

While capping the amount people can spend on presents, such as £30 per person for example, is one present-giving strategy, others include only giving one gift per person or per family, or only buying presents for the children.

The ultimate cost-saving strategy is to ban presents altogether, but for large family groups, a Secret Santa approach can be cost-effective while still celebrating the gift-giving element of Christmas. In this game, each person can only buy one gift at a fixed price for someone randomly selected in advance, with the fun coming from guessing who bought the present.

A similar strategy is the White Elephant game, where each family member brings one wrapped gift, again at a set value. Participants then determine the order they select gifts – either by age, height or by pulling numbers out of a hat. The first participant selects a gift to unwrap with the next participants either picking a new gift to unwrap or stealing someone else’s unwrapped gift. If your present is taken, you can then unwrap a new gift or steal from someone else. When everyone has had a turn, the first player decides whether to stick with what they have or swap – if they steal again, the game continues until someone declines to steal.

When it comes to children’s presents, remember, giving them everything they ask for only sets unrealistic expectations around money – so aim to give them the items they really want and then share their lists with family members to share the load, ditching the rest if the list is too demanding. For high-value items, such as a gaming device or new computer, family members could club together to share the cost.

Alternatively, get your children to categorise their lists into ‘something they want, such as a desired toy or gadget, ‘something they need’, such as toiletries, ‘something to wear’, ‘something to eat’ and ‘something to read’. That way all the bases are covered, and they feel they are getting more.

If a child wants a specific toy or gadget or your parents fancy a new air fryer, don’t accept the first price you see. While you can do this yourself by comparing online retailers or traipsing from shop to shop on the high street, some websites do the hard work for you – a particularly useful tool for those looking to cash in on Black Friday deals this week, or Cyber Monday.

CamelCamelCamel, for example, tracks prices on Amazon products to help you assess whether a sale price really is a steal deal, while sites such as GoogleShopping, PriceSpy and PriceRunner compare prices on certain products with online retailers.

The cheapest website to buy children’s presents this year is Smyths Toys, according to Which?, which found a trolley of 45 of the most-popular brands cost £1,077.70 between September 10 and October 10, £200 cheaper than rival The Entertainer. Meanwhile, Amazon was the second cheapest at £1,110.43 and Argos the third cheapest at £1,259.36.

With Black Friday and Cyber Monday coming up, it might be wise to get your family’s wishlist in early as you’ll typically see some of the best discounts of the year on the day as well as in the two weeks running up to it. However, double check you really have found the best deal by using the price-tracking websites listed above to determine whether the price on the item you want really is being marketed at a discount.

Remember, if you were going to buy a gift anyway, then of course buying it at a lower price makes sense. But if you get distracted by other must-have bargains not on your Christmas shopping list along the way, then you are not making a saving at all.

If buying new is too much of a financial struggle, try secondhand. From charity shops, car boot sales and websites such as eBay, Facebook Marketplace, Vinted and more, people often sell items still in the packaging that they don’t want or have only used once. Make sure you also sell your own unwanted items in the run-up to Christmas – a great way to boost your own Christmas pot.

With December typically the highest-spending month of the year for most households, it’s nice to get something in return so don’t forget to take advantage of the myriad of cashback, loyalty schemes and discounts on offer.

The simplest strategy is to make sure you have loyalty cards for the stores you are going to spend the most in, such as Boots, Paperchase or Superdrug. That way you can accrue points that can be converted into cash to put towards other purchases.

Similarly, if you haven’t already signed up to your supermarket loyalty scheme, then you are missing out – particularly if you shop at the same grocer every week. If you’ve been building up points through the year, cashing them in December will ease the festive budget, but even if you don’t have a card, start now to build up points for future use. It’s worth having a loyalty card for every supermarket chain anyhow - and for every fuel brand too - to maximise your loyalty point building.

Supermarket loyalty schemes often come with bespoke offers on the items you purchase the most, with extra points for those that use supermarket scanners for example. People that always shop at the same supermarket can often earn extra points by subscribing to the brand’s corresponding credit cards. Supermarket spending can also be reduced by collecting coupons from food packaging, supermarket newsletters and magazines as well as consumer websites.

To make your money go further, sign up for reward cards – these are credit or debit cards that either offer cashback, air miles or points that can be converted into vouchers to spend elsewhere. Only employ this strategy if you are debt free and can afford to clear the card every month. There’s no point earning cashback if you then have hefty interest rate payments on your outstanding balance for months on end.

One trick with all loyalty or cashback offers, particularly app based, is that you sometimes need to activate them to cash in. Your bank account will also likely have everyday offers you can activate so make sure yours are all fired up before you start your festive shopping sprees.

There are also cashback sites that reward spending with a commission payment as cashback. Quidco, for example, claims its members earn £300 in cashback on average per year.  Note, while sites like this are typically free to use, premium versions can charge a monthly fee.

With food inflation hitting a whopping 16.4% in the 12 months to October, people may need to cut the festive treats this Christmas to stay on track. The best way to approach this is to plan out exactly what you need for any festive gatherings to ensure there is minimal waste. Check your fridge and store cupboards to see what items you already have, such as cranberry sauce, so that you don’t double up. Then write a list for each festive occasion and only buy what you need.

When it comes to the big shop for Christmas Day, write a meal plan and start buying now to spread the cost across a month, with staples such as gravy, stuffing and crackers – the biscuit type as well as table decorations - all items you can buy in advance.

It might be worth switching from your favourite, local supermarket to a bigger outlet further afield, particularly if it is cheaper. Aldi was the cheapest supermarket in October in a comparison of 48 popular groceries, according to Which?, with the bill coming in at £75.79 on average. Head to Waitrose for the same shop and the bill comes in at £101.17 - that’s £25.38 more.

You might also want to downgrade some of the items you buy, such as swapping your turkey for chicken – much cheaper when you consider turkey prices are shooting up amid shortages caused by outbreaks of Avian flu. Similarly switch from your favourite brands on items such as gravy and stuffing to supermarket own brands, which are often just as good and typically much cheaper.

If you make too much food, just remember every leftover meal can be turned into something else the next day or frozen for a later date. Aim to consume every morsel of food you buy and apply the reuse or recycle strategy to any unwanted gifts too by either adding them to the gift drawer to give to someone else (making a note of who you received it from, of course) or sell it on.

There is little point in buying fresh decorations when you are likely to have plenty already sitting in the attic. One thing it would be wise to cut back on would be Christmas lights. Yes, they look pretty inside and out but with energy prices much higher this year than last, even with the energy price cap in place, it might wise to opt for a more conservative approach.

Just over a quarter of Britons (27%) are planning to put up less lights this year, according to a survey from Go.Compare Energy, while a sixth of the 2,000 people surveyed were not planning to put up any at all.

With Christmas tree prices also likely to be higher than last year amid this inflationary era, there might also be a surge in demand for artificial trees –a long-term investment as they can be used year after year. Again, compare prices before you buy. If you are not hugely fussed about buying a tree this year, then create alternative options, such as decorating large house plants to help the house feel festive.

While many people’s finances will survive Christmas with a few cutbacks here and there, for others the festive season could be the tipping point between coping and falling into serious debt.

For those whose finances are just about holding together, it might be wise to sign up for a 0% spending credit card that applies zero interest to your Christmas spend for a set number of months. Securing one is dependent on your credit rating, but 0% interest periods can be as long as two years which gives you time to clear the balance, making it the best short-term borrowing strategy.

This solution could also help if you have a niggling credit card debt you can’t pay off quickly. A 0% balance transfer card can take the pressure off as no interest is applied for a set period, with some cards offering 0% on spending and balance transfers. Remember there may be a balance transfer fee and for all types of 0% card, make sure you pay off the debt before the interest-free period expires.

If you already have unmanageable debts and are in danger of running up even more, then seek personal finance help. While Christmas is traditionally a time of joy, it can also be very stressful for those facing financial difficulties. With so many people under financial pressure this year, going to the shops can trigger feelings of stress, guilt or anxiety if they cannot afford to buy the gifts they want to.

Organisations such as Citizens Advice, the Debt Advice Foundation and StepChange Debt Charity can offer confidential support on getting out of debt as well as help with budgets and debt management plans tailored to your situation.

If financial stress is damaging your mental health, Mind and the Samaritans both offer confidential support lines to talk through problems. Mind can also offer strategies to stop overspending and how to understand your relationship with money.

If your financial worries extend to your savings and investments as well, it might also be worth chatting to a financial coach. Some companies, including Bestinvest, offer free financial coaching with qualified financial planners. Coaches can offer suggestions on how to manage your finances, which can include building a robust financial plan not just to get your through Christmas but also into 2023 and beyond. This could include guidance on prioritising expensive debts and also making sure you have enough set aside for an emergency as well as a sound plan for your long-term savings and investments.

It only takes one Christmas of financial strife to focus the mind on getting it right the next year. Use the lessons you learn in 2022 around budgeting and cutting back to get yourself in a stronger position for 12 months’ time.

If you receive a Christmas bonus, for example, as well as allocating some of the money to a pension or ISA to maximise you tax-free allowances, you could allocate some of it to a high-interest savings account, locking the money away for 12 months to take advantage of higher interest rates. That money could then be used towards your 2023 Christmas budget.

No bonus? Then don’t worry – just save a set amount in the highest interest easy-access savings account you can, automating the payment to leave your account at the start of the month before it gets swallowed up by everyday life. That will build a nice little festive pot you can tap into at the end of the year. Again, get your loyalty cards in place with the aim of using any money you build up over the year for your Christmas spend.

Finally, if you have overindulged this Christmas, adopt a no-spend strategy in January to help offset the extra expenditure. This means no spending on anything other than the essentials to free up some cash. Adopting dry January, where you don’t consume any alcohol in the first month of the year, will also offer some respite to your bank balance as well as your liver.