Planning ahead for holiday gifts, events and travel is good financial advice, but it isn't always possible, especially if you're living paycheck to paycheck.
There's no shame if you're having trouble setting aside extra money each month even before the holiday season starts. One in four Millennials have less than $100 in savings, according to a recent survey by financial health app Brigit, which shared its findings exclusively with CNET.
Saving can be daunting, but even if you put away $5 or $10 a week, you'd have $260 to $520 at the end of the year -- a decent start on an emergency fund.
It might seem an impossible task, but you can break that paycheck-to-paycheck cycle, even with the holidays looming. And you don't have to be a Grinch to do it.
The reality of living paycheck to paycheck
Saving for an emergency or planning for the future isn't easy when you’re running out of money before your next payday, much less saving for holiday festivities.
And it's not just lower-income people feeling the pressure. Brigit’s research found that 43% of Americans who earn less than $100,000 per year have less than $500 in savings.
How to break out of the debt cycle, even during the holidays
Escaping the paycheck-to-paycheck cycle might feel like pulling yourself out of quicksand, especially when there’s no clear way to limit expenses or increase earnings.
Brigit found that only 37% of Americans are able to save up to 10% of their paycheck after monthly living, grocery and transportation expenses are paid. The holidays can be particularly stressful when the societal expectation is to spend above and beyond what you normally would.
It’s not always easy, but saving during times of high spending (and potentially reduced working hours) can be done. Here are some steps you can take to break the cycle.
Focus on savings first
It can be difficult to prioritize savings before holiday spending, but building an emergency fund should be at the top of your list if you're living paycheck to paycheck.
As a general rule, you should save two to three months’ worth of living expenses for unexpected expenses. This might seem daunting, but even small contributions to an emergency fund can help create a financial cushion.
Consider setting up an automatic payday transfer to a savings account. Setting aside $10 to $20 every two weeks might not seem like much, but it can add up over time.
If your bank offers a round-up feature, it's another smart option for small savings. Each time you use your debit card to make a purchase, the transaction will automatically be rounded up to the nearest dollar, and the extra change gets deposited into your savings account.
Once you have a savings strategy in place, you can think about your holiday expenses.
Budget for the holidays
Managing your holiday spending starts with setting a budget. The latest CNET Money survey found that 72% of shoppers plan to make tradeoffs to afford their holiday spending. You can do the same by deciding what's most important to you during the holiday season.
If you’re going to travel, set a limit for how much you can spend, then start looking for low prices on plane, bus or train fares, or estimating gas for driving.
“The nice thing about the holidays is that they aren’t unexpected,” said Janelle Sallenave, chief spending officer at Chime Financial, a fintech company offering basic banking services. “Prioritizing and being very clear and active in managing your money to plan for that upcoming expense is really critical, and there are ways to do that.”
Before buying any gifts, make a list of everyone you want to shop for and set limits for how much you can spend. If you have the skills to make a gift, such as a handmade card with a thoughtful handwritten note inside, that could help save money and be more meaningful than a cheaper, store-bought gift. If you know your budget is tighter than in previous years, set expectations early with loved ones.
“Being able to be open about the situation you’re in, sharing why you’re coming early or late, or why you’re driving or not flying, or why you’re doing handmade gifts -- we always have to come back to the idea that our money is ours to manage,” Sallenave said.
Chime’s research found that 28% of working Americans missed a family or friend gathering due to financial constraints. If making those gatherings during the holiday is a priority for you, then you may need to reallocate money you might've spent on gifts toward the costs of getting that in-person quality time instead.
Budgeting apps can help you allocate funds for specific events or purchases. Both Brigit and Chime offer free budgeting tools. A simple spreadsheet that tracks income and expenses can also be effective.
One pitfall to avoid is falling prey to “great deals” on items or services that you can’t truly afford. Impulse buying and dipping into savings for nonessential purchases are two of the biggest disruptors to staying on track with your spending and your budget.
Use credit cards with caution
Using credit cards to meet immediate financial needs might seem like a good idea (or like the only option) at the time, but it’s better to avoid relying on credit cards to pay for expenses if at all possible.
Chime recently released a survey showing that 45% of working Americans used a credit card in the past six months to avoid missing out on events, product purchases, services, or repairs. This can land you in credit card debt, which can accrue interest at sky-high rates and leave you even further behind.
Using a credit card can be a good idea if you can pay off the balance every month, especially if the card also offers cash back or reward opportunities (such as travel points) that can help you save on purchases. But if you carry a balance, any value you'd get from rewards would likely be wiped out by interest charges, so be sure you're able to pay off your card if you're using this strategy.
If you're tempted to overspend on holiday festivities, consider putting your credit card away somewhere for safekeeping during the holiday season so you can't swipe on a whim. If FOMO (fear of missing out) lures you into spending, try taking a break from places that trigger it, like social media.
Decide if a side hustle makes sense
If you’re having trouble finding room in your current budget for the holidays, you might be tempted to take on a side hustle or temporary second job. This can help you earn extra money for the holiday season, but make sure you set some guardrails.
Be careful not to overwork yourself. Leave room in your life for rest and recovery. Extra income is fantastic, but you don’t want to overextend yourself to the point of burnout, which could affect all of your income streams.
You might also be tempted to overspend if you have more money at your disposal. Be sure to stick to your budget and savings plans so you don't end up leaning on credit to finance gifts or holiday travel.
Planning now for a more comfortable new year
Even when money is tight, there are ways to stay on track and make the holidays less financially stressful.
If you take control of your finances now, before the additional expenses of the holidays, then you’ll be setting yourself up for success in 2025. Just the small steps of creating a budget and putting aside as much money as you can into an emergency savings account can have a big impact on your cash flow and peace of mind.
