More Than Half of Consumers Plan to Spend Over $500 This Holiday Season. Here's How to Know How Much You Can Afford

Some people will tell you that the holiday shopping season doesn't really kick off until Black Friday. Others will tell you that it basically encompasses all of November and December up until the 25th. 

Whether you've started your holiday shopping or not, though, it's important to be mindful of how much you can afford to spend. A good 51% of U.S. consumers plan to spend over $500 this holiday shopping season, according to data from TransUnion. That may be doable for you, or it may be a stretch.

The last thing you want to do is close out 2023 with a heaping pile of credit card debt. So to avoid that fate, you'll need to set a shopping budget. Here's how.

1. See how much money you have in tappable savings

If you have money in your savings account, you may be able to use some of it to cover your holiday purchases. But one thing you don't want to do is leave yourself with too little money in emergency savings. 

As a general rule, your emergency fund should have enough cash to cover three months of essential expenses. So let's say you spend $2,400 a month on essentials and have $7,500 in the bank. That means you should really leave yourself with $7,200 for emergencies and, as such, consider your first $7,200 in savings off limits. That would give you $300 from savings to work with as a starting point.

2. Figure out how much of your upcoming paychecks you won't need for essential bills

It's never a good idea to commit your entire paycheck to essential expenses. Hopefully, you have a little wiggle room to spend money on extras, whether it's social events, takeout meals, or other things that bring you joy.

What you'll want to do is take a look at your next few paychecks, figure out how much you need for essential bills, and see what's left over. So let's say you determine that between now and Christmas, you'll have $400 in discretionary cash from your wages. Of that, though, you may want to earmark $200 so you can pay for social outings or buy dinner on those nights when you're too tired to cook. In that case, you can add $200 to your holiday shopping budget.

3. Determine how much cash back you can squeeze out of your credit cards

Many people bank credit card rewards, rather than using them right away. It pays to do a review of your credit card accounts and see if you have points you can convert to cash back, or to gift cards for stores you want to shop at for the holidays. Whatever that total is, you can add it to your running tab to finalize your holiday shopping budget.

If you're planning to spend more than $500 on holiday shopping this year, perhaps you can easily afford it. But if not, come up with a number that works for you so you don't have to start 2024 with a pile of expensive debt.