The average American spends more than $1,000 during the holiday season. And much of that spending is on credit cards, which means that many people face big bills in the New Year. The key to keeping holiday spending (or almost any other kind of spending!) under control is planning and sticking to a budget. By planning your holiday spending carefully, you can save money and still keep the holidays happy. Remember to start early! Sometimes bargains can be found months in advance.

Setting a holiday budget

The first step in controlling holiday expenses is deciding exactly how much you can afford to spend. There are four main areas in which most people spend: gifts, entertaining, travel, and decorating. And each one comes with hidden expenses. For example, gift-giving costs much more than the price of each gift. You also have to consider wrapping and, often, shipping costs.

Take time to make a list of everyone you want to buy gifts for. Include teachers, the mailman, co-workers, newspaper delivery people, and anyone else you usually end up giving something to. Then consider your list. Are there people who could get a card rather than a gift? Someone you could chip in on a gift for rather than paying for it by yourself? Then, set a price limit on each gift. For example, you might decide that you'll set a $30 limit on immediate family members, $20 on children in your family, and $10 on acquaintances like co-workers or teachers. Don't forget to add in the cost of wrapping paper and shipping, including what you'll pay for a catalog- or online-ordered gift to reach you before you ship it to the recipient.

Many people forget to factor in the cost of holiday entertaining. Even if you aren't having a party, providing snacks and drinks for neighbors or friends who drop by and serving the holiday meal can be expensive. If you'll be traveling during the holidays, even if it's by car, be sure to include these costs in your budget. Finally, estimate how much you'll spend on holiday decorations. This is often an easy area to cut back in.

Finally, add up the estimates from all four areas. If the total amount is more than you can afford, go back to your lists and the tips in this article to see where you can either cut back on your budget or save on expenses so you won't have to. Ideally you'll do this early enough in the year so you can slowly set aside money to cover your holiday expenses or shop for reasonably priced gifts throughout the year.

Once you've reached a reasonable budget limit, you need to commit to sticking to it. The tips below can help.

Ways to spend less

Many people blow their holiday budgets because they get carried away by the excitement of the season. It's important to remember that you can still have a joyous holiday season without busting your budget. Try to focus on the true spirit of the season rather than the more commercial aspects. Also, don't give in to pressure to give expensive gifts. The best gifts are those chosen with an eye toward what's personal and meaningful to the recipient, and they don't have to cost a lot.

Here are some more ways to save money during the holidays:

• Set expectations with friends and family. If you're worried about your finances this holiday season, talk about it with friends and family. They might be just as relieved as you are to set limits on spending or, in some cases, to skip gift-giving entirely. Let them know if you'll be cutting back on the number of gifts or how much you plan to spend. This is especially important for children, who often have unrealistic expectations about gifts and don't fully understand the costs. Also consider price-limited charitable donations in the family's name.
• Look for ways to cut back on the number of gifts you buy. There are many ways to shorten your gift list. If you have a large family or group of friends, ask if they'd like to draw names out of a hat and give one gift per person. Or give family gifts, such as a board game, a laser-tag session, a movies-by-mail membership or a pass to a local museum rather than individual gifts.
• Consider homemade gifts. Many heartfelt, thoughtful gifts don't come with a sales receipt. You could cook some treats; put together a photo album; make a themed gift basket full of smaller items, like tea, paperback books, or gardening tools; or give the gift of your time by making homemade coupons or certificates for child care, cleaning, providing a heat-and-eat dinner for the family, etc.
• Make a shopping plan. Don't head out to the mall without a specific list of gift ideas. This is how you end up spending more than you budgeted for. Flip through catalogs and check websites for ideas and develop a list before you even set foot in a store.
• Look for bargains. Buying several gifts from one catalog or website helps save on shipping, or better yet, look for sites that offer free shipping. Comparison shop using fliers from the weekend newspapers to find the best deal around or check out websites with printable coupons from major retailers. Consider buying gifts on sites that offer many new, high-quality items at discount prices. Also, at large chain discount stores, you can get quality, brand-name clothing, accessories, housewares, decorative items, toys, coffee and food gifts, and even pet supplies at a fraction of their retail cost. You can also save on websites that provide deeply discounted limited-time special offers on dining and other services and products.
• Brainstorm for ways to cut entertaining costs. For example, invite friends and neighbors over for a cookie swap rather than baking batches to give away. Or host "pot luck" holiday meals with friends or family instead of supplying all the food yourself.
• Be sure to use your Exchange. In addition to the usual tax savings and price-matching benefit, you'll find special holiday discounts.
• Cut back on mailing expenses. If you always send boxes of gifts or holiday cards to loved ones far away, think of ways to save on or eliminate shipping costs this year. Buy magazine subscriptions or send online gift certificates or gift cards instead of shipping gifts. Send holiday postcards or even e-cards instead of regular cards. And be sure to mail things early so you don't have to pay extra for fast shipping.
• Make careful travel plans. If your holiday plans include a trip, thoroughly investigate your options as early as possible. For example, could you drive instead of fly? Stay with a friend or relative instead of in a hotel room? Make do without a rental car? If you need to travel by air, take advantage of websites to help you find cheaper tickets. If possible, be flexible about dates. You could save a lot of money by flying immediately after the holidays rather than before.
• Keep it simple. Focus on enjoying the simple pleasures of the holiday season, like spending time with friends and family or taking a walk with a to-go mug of hot chocolate to see the holiday decorations in your neighborhood. Take a driving tour of best-decorated houses in your area (local news websites and newspapers often provide a listing of these houses). These kinds of activities often capture the spirit of the season better than expensive gifts or elaborate celebrations.
• Use your credit card wisely. Finally, think before you use your credit card to pay for holiday expenses. Don't use it unless you know you can pay it off right away. Remember, by buying a sweater on sale with a credit card only to make the minimum monthly payments on the card, you could end up paying double the sweater's sale price. A Happy New Year does not start with huge credit card bills!