Protect your holiday budget from high inflation

If you’ve done any brick-and-mortar shopping since Halloween, you've probably noticed wreaths, snow-tipped artificial trees, Christmas lights and wrapping paper accumulating inside retail locations.

Holiday shopping promotions seem to begin further in advance of the actual holiday each year, as retailers look to maximize holiday revenue and consumers rush to take advantage of deals to save money.

As the holiday shopping season hits full swing, following these simple tips can help prevent you from over-spending during the holidays while still enjoying the spirit of giving.

Holiday spending going strong despite rising prices

Inflation has ballooned to 9.1%, the highest in four decades, and higher interest rates mean higher costs for those relying on credit.

Further, according to a survey by the National Retail Federation (NRF), some 60% of consumers said economic factors were a cause for concern around holiday spending, reflecting a similar sentiment during the Great Recession of 2009.

Yet even with economic obstacles and accompanying consumer gloom, spending plans are largely intact, according to NRF, the largest trade association for U.S. retailers, with holiday retail sales poised to grow between 6% and 8% this year.

“Almost regardless of what’s going on in the economy, consumers want to celebrate holidays,” said Katherine Cullen, NRF's Senior Director of Industry and Consumer Insights.

How much will the holiday season cost?

Shoppers expect to spend about $832.84 on gifts and holiday items in 2022, NRF found, consistent with the 10-year average.

There is, however, some variation by income level. Households earning less than $75,000 a year plan to pare down holiday spending by 7% to $606, while those bringing in more than $75,000 expect to boost their spending 5%, to $1,304.

U.S. consumers are still benefiting from a strong labor market, and “more people working means more people spending,” said Jack Kleinhenz, NRF’s chief economist.

While shoppers are concerned about higher prices and the overall state of the U.S. economy, they’re “not necessarily feeling like they need to pull back in all areas of their spending,” Cullen said.

In fact, the group’s survey found that 62% of respondents still believe it’s important to invest in celebrations and holiday gifts for the people they care about.

“They’re also prioritizing everyday essentials: the food they need, the gas they need, those types of items,” Cullen added. “They’re not necessarily going to take away from those to buy gifts, but where they can, they want to make the holidays feel special. In a sense, it’s a type of essential category of spending much more than a regular discretionary purchase.”

Create a holiday budget

Whether you opt to spend more or less this year, making a budget will help you stay within your means and avoid gift-givers’ remorse when the bills begin arriving. Once you figure how much you need for living expenses, you can decide how much you can afford to spend for gift-giving. And once you've set your holiday budget, stick to it.

Try these cost-saving tips

In the short term,  consider these holiday spending suggestions from AARP and Fortune magazine:

• Make a list in advance and be sure to include all the major expenses, from gifts and parties to holiday clothing.
• Only use traditional high-spending events such as Black Friday and Cyber Monday to purchase items off a pre-determined list of things you wouldn't otherwise buy.
• Look for decorations and small gifts at discount stores.
• Make gifts yourself (e.g., cakes, cookies, gloves, scarves, paintings, or ceramics).
• Consider getting a temporary job or selling some belongings you no longer use (furniture, clothes, toys) to expand your budget.

Even with high inflation and looming economic uncertainty, following these holiday spending guidelines can help you enjoy the season the way you want while keeping your finances on track.