We talk a lot about ways to save money, don’t we? And since we are in the holiday season, we’ll be sharing more ideas that focus on saving money during the holidays. But one thing that I notice is missing in the frugal living posts is an actual guideline about how much, in a dollar amount, that you should be spending on Christmas gifts.
We all tend to go a little bit overboard during the holidays, and we figure that we will just cut back on other things later. Each of our families have their own financial limitations when it comes to gifts, but sometimes we ignore those limitations in the wake of the holiday season.
Now, I’m going to give you a guideline for calculating your own gift budget. Keep in mind that this is the maximum amount that you should spend. Most people can spend up to this amount without getting into trouble, assuming that they aren’t overspending elsewhere. The number is 1 percent of your after tax income. That is after tax dollars. For example, if you make 50,000 a year and pay $10,000 in taxes (this will vary of course, but 20 percent is a good number to start), then your after tax amount is 40,000. One percent of this is $400.
Wow, that might seem like a lot of money or a little bit, depending on where you are coming from, how many people are on your gift list, etc. Challenge yourself to stay within this budget or even much less.
The average amount of money that Americans spend on Christmas gifts varies each year. I’ve seen various polls and analytics and most say that the each person will spend about $795 each. So, if you have a family of two adults, that is almost $1,500 on gifts, close to four times the amount for our example above.