Believe it or not, we’re in a recession and many people are struggling to make ends meet. It’s not an easy situation, to be sure, especially now that the holiday season is upon us. It’s around this time of year that we tend to exercise a little less restraint, splurging on all sorts of things and showering our loved ones with terrific gifts. Given the current economic situation, this is probably not what you want to do this year. More so than ever, it is important that you pinch some pennies over the Christmas holidays.

Even though I largely make money online and have been left largely unscathed (thus far) by the financial downturn in the markets, I still believe that it’s important to save money whenever you can. Saving an extra dollar is just as good (if not better) than making an extra dollar. A penny saved is a penny earned, after all. Let’s see how you can save an extra penny or two.

Setting a Budget and Sticking to It

Whether you are buying a present for your spouse, your child, or your best friend, it is important that you establish a budget in your mind and you stick to it. Heading into the massive chaos that is the shopping mall, it is far too easy to let your budget slide. You may walk into the store telling yourself that you will spend no more than $50, but then you spot a “perfect” gift that costs $70. And that item would go so well with this accessory and that add-on. Oh, and the shop offers a gift-wrapping service for a few extra bucks. Pretty soon, your $50 budget has resulted in a $150 gift. Don’t let that happen.

One Big Gift, Not Many Small Gifts

This tip doesn’t really apply quite as well when you are buying gifts for children, but under most other circumstances, it is a far better idea to give one larger present to someone rather than several small gifts.

For example, you may want to give a gift of appreciation to your child’s schoolteacher. Instead of presenting her with a $10 trinket, try getting together with the other parents of that class with each person chipping in $5. You’ll pool your resources and give this wonderful educator the gift she deserves.

In like manner, you can do the same thing for office exchanges, gifts among friends, and presents among adult relatives. The best way to tackle those scenarios is with a Secret Santa exchange. This way, you only buy one (bigger) gift instead of smaller gifts for everyone. Even if you’re not in the same geographical location, you can use a free online service like Elfster to set up your Secret Santa.

Cutting Back and Going Generic

It’s a good idea to consider this tip throughout the year and not just during the holidays, not just during an economic downturn. There are many areas in your life that result in tiny expenses, but each of these little purchases can add up quite quickly. The next time you go out for a nice meal, skip the drink and just get water. The next time you go to the grocery store, pick up the generic equivalent of Band-Aids, Heinz ketchup, and McCain frozen pizza. Oftentimes, shopping at the dollar store is just as good. They’ve got candy, instant rice, cookies, canned pasta, and all sorts of other things.

Entertaining, Decorating, and Partying

If you’re the one hosting the holiday party or dinner this year, you’ll want to look into how you can minimize those expenses. This not only applies to the food and drink, but also to the decorations and other paraphernalia that could be involved. Going back to the dollar store, you’ll find all sorts of cheap garland to dress up your home if need be.

Bread is a great way to cut food costs, because it is relatively inexpensive, but can be quite filling. In this way, you don’t have to spend the same amount of money on other items on the table. Further still, avoid individually bottled beverages, because these always cost more than their large-bottled counterparts. Don’t buy a flat of pop cans; buy a few 2L bottles instead. The same can be said about alcoholic drinks. Instead of offering a wide variety of the happy sauce, keep it simple. This way, you don’t end up with a bunch of half-empty bottles at the end of the night.

Looking Beyond Your Immediate Circle

You want to watch where you spend your money during the holidays, so you may need to partake in some penny-pinching behavior. That said, it is also important to broaden your perspective and look beyond the “need” for little Timmy to get the latest Elmo toy.

Remember to give back during the holidays. Don’t have a lot of extra cash lying around? Well, John Chow recently reviewed The guys behind this Tiny URL service provided him with $5000, which John then donated to Union Gospel Mission. Hearing this, gave John another $6000 to give away to a reader, $5000 of which goes to the charity of their choice and the extra $1000 goes into their pocket. If I win, I think I’ll give the entire $6000 to United Way. More information about this contest can be found here.

Even if you don’t win the contest and you don’t have the money to spare, you can still help charitable organizations in your area by donating your time. Volunteer in the soup kitchen. Help out at the food bank. Give back to your community in need.