Spending

The 5 U.S. cities where residents can afford to spend the most on the holidays

Shoppers nationwide expect to spend $998 this year, but in certain cities they can afford much more.

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Even though the coronavirus crisis has upended the retail industry, Americans still plan to shop for the holidays. And while the amount of money they can afford to spend depends on budget and personal circumstances, the city where they live could play a role as well.

Researchers at personal finance website WalletHub used data from the U.S. Census Bureau, Bureau of Labor Statistics, and Tax Foundation to find the maximum amount shoppers can afford. They compared 570 U.S. cities across five metrics including income, age, debt-to-income ratio, income-to-monthly expenses ratio, and the ratio of savings to monthly expenses.

The algorithm considers a consumer to be in a comfortable financial position to do holiday shopping if they have enough emergency savings to cover six months of expenses and a debt-to-income ratio smaller than 22% for renters or 43% for homeowners.

On a national scale, consumers expected to spend $998 each on gifts and holiday items like food and decorations, according to a National Retail Foundation survey of 7,660 consumers conducted in early October. In these cities, however, residents may be able to afford to spend more than twice as much. Here are the top five U.S. cities where residents can afford to spend the most on the holidays while avoiding financial regret.

Palo Alto, California

Maximum holiday budget: $3,056

Flower Mound, Texas

Maximum holiday budget: $2,973

Naperville, Illinois

Maximum holiday budget: $2,867

Sunnyvale, California

Maximum holiday budget: $2,829

Newton, Massachusetts

Maximum holiday budget: $2,768

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'There's no one-size-fits-all holiday budget'

Shoppers in the top 164 cities on the list, in fact, can afford to spend beyond $1,000. But just because you may be able to splurge doesn't mean you should, since impulse shopping can lead to overspending.

It can be helpful to decide what to buy beforehand and price compare for the best deals. You could even make a grocery store-style list, which has been shown to help shoppers stick to a plan and curb the temptation to buy things they don't need.

"Holiday expenses can sneak up on you, and before you know it your New Year resolution is 'pay off holiday debt,'" Jeanette Pavini, personal finance advocate and the author of "The Joy of $aving," tells Grow. "This year more than ever people need to avoid not only overspending but also avoid creating added debt. Know exactly how much you can comfortably afford to spend."

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And think about using cash instead of plastic. A recent MIT study found consumers are willing to pay 83% more when paying with a credit card over cash. But by making purchases less automatic and more "painful," shoppers might make smarter choices with their funds.

"If you have $100 to play with," for example, "that's all you can spend, and my guess is that you'll spend very carefully," Trae Bodge, a smart shopping expert at Truetrae.com, told Grow in September. "If you make a list and stick to it, that will help keep you on track."

If you plan to decorate your home, or send virtual cards or best wishes, make a note of those expenses. They are often overlooked but can add up quickly.

But no matter what you do, cover your essentials first. "There's no one-size-fits-all holiday budget; yours should be based on how much extra money you have," Consumer Analyst Michael Bonebright with DealNews.com, tells Grow. "This means you need to account for bills and debt before you start making holiday purchases."

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