How to Avoid Overspending on Holiday Gifts

Posted by CapWay in BudgetingDecember 4, 2019(Last Updated January 11, 2023)4 min read
Key Takeaways
  • In 2018, Americans added an average of $1,230 of holiday gifts on their credit cards.
  • Communicating your financial boundaries with your loved ones helps them know what you can and cannot spend money on this holiday season.
  • A good rule of thumb is to spend no more than one percent of your annual take-home pay on gifts during the holiday season.
Are you ready to make some real money moves?

In 2018, Americans added an average of $1,230 of holiday gifts on their credit cards. As a society, we have bought into the idea that the magic of the holiday season lives in buying gifts. Buying gifts for the people in your life can make you feel good, but your pockets can be left in bad shape if your gifts lead you to take on unnecessary debt, ruin your budget, or sacrifice your financial priorities like paying bills. 


The holidays should be filled with cheer and happiness. When the holiday season is over, your bank account and budget should still be in good standing. If you are in the holiday spirit and want to spread the cheer by purchasing gifts, here's how you can comfortably spend money without going into debt.


Follow the 1% rule 


When shopping for gifts, it can be easy to get carried away and start throwing items into your shopping cart. However, the reality check may kick in when you get to the register. So, before you step foot into any shopping center or store, you must create a spending plan for yourself.


If you are new to creating a budget for your money then it can be hard to understand how much you can afford when it comes to gifts. A good rule of thumb is to spend no more than one percent of your annual take-home pay. So, if you make $36,000 a year after taxes, you should spend no more than $360 total on your holiday gifts. 


To find your gift max, multiply your take-home pay by one percent. Remember that your gift max is a threshold to make sure that your spending fits your income. 


Use this formula to find out how much your gift max.

Annual Take-Home Pay x .01 = Your Gift Max 


How much can you really afford?


If you do the math and your gift max is $500, that doesn't necessarily mean that you can afford to spend that much on gifts for the season. Here are signs that you can't afford to spend your gift max this holiday season: 


  • You will have to put the money on a credit card.
  • You will not be able to pay major bills or necessities if you buy the item. 
  • You did not save and can't cover the gifts comfortably from your upcoming paycheck.
  • You have debt or bills that you can't pay today. 


What to do if you cannot spend much money this holiday season


The holiday season is the one time of the year where it feels like you have to spend all your money to make your loved ones happy. First, however, you have to be honest with yourself and your loved ones about what you can and cannot spend money on this year.


1. Set expectations with the people in your life


Communicating your financial boundaries with your loved ones helps them know what you can and cannot spend money on this holiday season. By letting your loved ones know ahead of time, you are helping them to know that you can't buy presents this year. Most times, your loved ones will understand your decision. 


2. Be honest with yourself and your bank account


Setting expectations with the people in your life can be difficult, especially if it's the first time you are advocating for yourself. But setting expectations for yourself and your finances can prove to be more difficult. Most times, when it comes to spending on gifts, it's not that people demand it from us. Instead, it's that we expect ourselves to provide or show our love for the people in our lives with presents.


You have to remind yourself that choosing not to buy gifts doesn't mean you love your family any less. Instead, it is a testament to your dedication to getting your finances in order. As you continue to learn and grow on your financial journey, you must be at peace and confident with your decisions to prioritize your future. 


3. Choose a gift exchange or white elephant


If it is too tempting to purchase gifts for all of your family and friends, then choose to participate in a gift exchange or white elephant. This way, you are responsible for getting one gift instead of buying presents for multiple people. In addition, participating in a gift exchange takes the pressure off you to buy everyone in your life a gift, which can get expensive very fast.


The holiday season is about spreading cheer and happiness. It's not about who buys the most presents. Remember, you can still spread love without going into debt for your loved ones.


What helps you to not overspend on holiday gifts? Share your thoughts in the comment section below.

Was this content helpful?
Comments (0)

Sign In to leave a comment.

Download the CapWay App

Access more features to your Money Account

  • Money Goals
  • Request Money
  • Categorize Spending
  • Money Talk

The CapWay, Inc Debit Visa Card is issued by Metropolitan Commercial Bank (Member FDIC) pursuant to a license from Visa U.S.A. Inc. “Metropolitan Commercial Bank” and “Metropolitan” are registered trademarks of Metropolitan Commercial Bank ©2014.

1. For Money Account holders with a negative balance, the CapWay debit card will go into freeze until funds are deposited to bring account back to current. See terms and conditions

2. Sending or receiving money from other CapWay account holders will be instant. Transfers from other accounts could take up to 48 hours, depending on the financial institution.

3. Early access to funds requires direct deposit. Early payment is not guaranteed and is dependent on the timing of payer's submission of deposits. We generally post such deposits on the day they are received which may be up to 2 days earlier than the payer's scheduled payment date.

4. Money Goals allows account holders to save money towards financial goals created within the CapWay platform. Funds can be transferred from your Money Account or saved through the rounding up of your transactions from purchases.

5. CapWay offers financial content through Learn Money free of charge, but may include advertisements through affiliates. Phunds, CapWay's literacy program and session, is paid content or co-branded content.

© 2019-2023 CapWay Inc. All Rights Reserved.