Should You Have a Special Savings Account for Holiday Shopping?

It's definitely not a bad idea.

At this point, a lot of us are deep in the throes of holiday shopping -- and getting increasingly stressed out by the day. While the holidays may be lovely, they can be very expensive. This especially applies this year, given the way inflation is making just about everything cost more.

If you're worried about your rising credit card balance as a result of your holiday spending, let it serve as a wakeup call to tackle the holidays a bit differently in the future. In a recent TD Bank survey, 53% of consumers said they actively set money aside for the holidays during the year to avoid a financial crunch in November and December.

For some, that means stashing physical cash in a jar earmarked for holiday purchases. For others, it means opening a separate savings account for holiday spending only.

The latter is an idea worth considering. And it could spare you a world of stress when the 2023 holiday season rolls around.

It pays to keep holiday cash separate

The great thing about the holidays is that they come around at the same time every year -- which gives you a lot of opportunity to save up for them in advance. Now you could do what some people do and stash rolls of bills in your apartment. But a better bet may be to open a savings account earmarked for holiday purchases. That way, you won't have to worry about losing physical cash.

Plus, you'll also get to earn some interest on your money. And since some savings accounts are actually paying pretty nicely these days, that's a good thing.

Now you may be wondering why you can't just pad your regular savings account and dip in during the holidays. There's no reason you can't go this route. But if you keep your holiday spending money separate, you won't get confused and accidentally dip into cash reserves that were originally meant for another purpose.

Let's say you have a $9,600 emergency fund to cover three months' worth of essential bills at $3,200 per month. You might manage to add money to that account during the year for the holidays.

But then, once the holidays rolls around, you might accidentally withdraw funds below the $9,600 mark -- perhaps thinking that $9,000 was your emergency fund threshold. So that's why opening a separate savings account could be preferable. That way, there won't be any question as to how much holiday cash you have to spend.

Start saving in January

It's too late to go back in time and save up for this year's holiday season since, well, we're already in it. But once it's over, make an effort to carve out room in your monthly budget for holiday savings every month starting in January. That way, come this time next year, you may end up sitting on a nice amount of cash -- and you won't have to worry about closing out the holiday season with a daunting credit card tab.