Money Advice Service

After the fun of Christmas is over, many of us are left facing a hefty bill in the New Year. It can be hard to avoid using credit to pay for the festive season but saving in the run up will help soften the blow in January.

Saving versus borrowing for Christmas

It’s difficult to pay for Christmas out of December’s pay packet alone, so it makes sense to save up as much as you can beforehand.

The earlier you start saving, the less you need to put aside each month. Even a small amount over a few months can make a big difference.

Borrowing money to cover your Christmas spend could come at a price in interest and fees.

At best, that could be money used for something far more worthwhile - at worst, it could leave you with debt you might struggle to pay off.

Christmas savings clubs won’t offer you interest on your savings and come with a greater risk than saving through your bank or building society.

To find out more, read our guide to Christmas savings clubs and schemes.

Step 1 – Set a budget

Use our Christmas money planner to help create your own budget and see how much you can save in time for Christmas Day.

The average Christmas spend per household is around £500, which includes food, presents, travel and decorations, among other expenses.

To begin your budget, make a list of family and friends you will be buying presents for and allocate an amount for each person.

If you are hosting dinner then consider how many people will be coming over and how much you will need to spend on food and drink.

From there, you should be able to work out how much money you would need to put away each month.

For example, saving £50 a month from the start of the year will get you £600 to spend at Christmas.

Step 2 – Work out how much to save each month

Use our Savings calculator to see how much you’re able to regularly put aside and how quickly you’ll reach your target of credit-free Christmas.

Treat saving in the same way as you would a bill.

Committing to saving a regular sum each month or week is more effective than simply saying you’ll save whatever you have left over, which might be nothing.

Try to be realistic – it’s better to commit to a manageable amount than to aim too high and give up.

Not sure how much you can afford to save? Start small – put your spare £1 or £2 coins into a jar each week.

If that works, try setting aside a bit more on a regular basis.

If you’re still struggling to find ways to save, read our guide What if you can’t afford to save?

Read a transcript of this video

Step 3 – Consider starting some new Christmas traditions

Pressure to please loved ones and to give children the perfect Christmas tops the list of reasons people overspend during the festive season.

Consider starting some new Christmas traditions that the whole family can join in with and save some money along the way.

Firstly, start early. Picking up Christmas essentials like crackers or decorations in the sales can mean big savings, sometimes around 50%.

If you know what gifts you need to buy, it can help to pick up an item a month to help spread the cost and save you the hassle of shopping when everyone else is.

You could also embrace the digital age and email Christmas cards to save on postage.

There are lots of free websites that let you create your own cards, with family photos and videos.

First class stamps cost 60p, while second class stamps cost 50p, so if you plan to send 30 cards by email this year, you could save between £15 and £18.

A pre-Christmas clear out with the family will help you get in order for the festive season but could also put some money back in your pocket.

Once you’ve put aside anything you no longer want, make some extra cash by selling it online or at a local sale.

If you time it right, you’ll find plenty of people looking for second-hand gifts.

If you’re buying gifts for work colleagues, you could set a limit of £5 to £10.

You could also give something handmade instead, especially if you’ve got a hidden talent - with everyone feeling the pinch, your suggestion might be very welcome.

Check out our guide How to get rid of clutter and make money.

Step 4 – Decide where to put your Christmas savings

For small amounts the best place might simply be a coin jar. Make sure you transfer it into a savings account as soon as it’s built up to a tidy sum.

Maybe you already have a bank account that lets you set up a separate pot for your Christmas savings goal. If not, open an instant-access savings account.

Set up a Direct Debit or standing order to transfer the amount you’re saving into your Christmas account each month.

Use this downloadable template (DOC 26KB) to send a standing order instruction to your bank.

Comparison websites are a good starting point for anyone trying to find a current account tailored to their needs.

We recommend the following websites for comparing current accounts:

Remember:

  • Comparison websites won’t all give you the same results, so make sure you use more than one site before making a decision.
  • It is also important to do some research into the type of product and features you need before making a purchase or changing supplier.
  • Find out more in our guide to comparison sites.

Alternatively, you could look at using a Christmas savings scheme, but they’re not regulated in the way that banks and building societies are.

If the Christmas club you’re saving with goes out of business, you might lose all of the money you put into it.

You’re also quite likely to receive your money back in vouchers, which are not always easy to spend in full and gives you a limited range of retailers to spend it with.

If you’re struggling to open up a bank account for your savings, then consider speaking to your local credit union.

They’re more likely to offer you a higher rate of return on your savings than a Christmas club.

Use our Guide to credit unions to learn more about community savings for people struggling to open a bank account.

This article is provided by the Money Advice Service.