By Brian Butchart, CFP®
Most of us look forward to the end of the year to wind down, relax and enjoy quality time with family and friends, especially if it’s been a particularly tough year. It’s also a particularly challenging time of the year financially.
It’s so easy to overspend during the festive season, as we get caught up in the excitement and celebrations at the end of the year.
In 2016 the National credit regulator reported that the South African consumer was collectively in debt to the tune of R1.66 trillion. This includes mortgages, vehicle finance, secured as well as unsecured credit. Of the 23.88 million active consumers 60% (14.32 million) were in good standing while 40% (9.56 million) had impaired records.
December is no different from any other time of the year. You do not necessarily have more money to spend, but if you are lucky enough to get a bonus, you should consider using this to prioritise debt, save and spend wisely over the festive season to avoid a financial hangover in the new year.
Here are a few helpful tips to plan and keep track of your spending to achieve this:
Assess each purchase – You are your own finance minister and must therefore assess all purchases on merit. The best way to do this is to ask yourself the following questions:
- Is it necessary?
- Is this an impulse purchase?
- Most importantly, can I afford it?
Set a holiday budget – Consider setting a cap for general spending on your TOTAL holiday expenses. This would include travel, gifts and entertainment. But be realistic about your budget. Setting your cap too high will defeat the purpose of your budget and too low a budget will result in frustration and overspending. Allow for some flexibility, but try and stick to your budget as best you can. Some ways to save costs and stay within your budget could be:
- Entertain at home instead of going out.
- Travel locally instead of internationally.
- Predetermined gift values for each person you buy for and stick to it.
Save a portion of your bonus – If you lucky enough to have a job and have earned a bonus save a portion of this into a money market fund or unit trust immediately. By saving first, before you spend automatically reduces the disposable income in your bank account and ensures accessibility to funds later for emergencies and/or the longest month of the year aka January. Preferably of course, I suggest avoiding access to these funds all together if possible. Instead I suggest creating a healthy habit of regular savings contributions via debit order and not just once off in December.
Look for sales – online shopping and annual sales such as Black Friday or new year’s sales can offer value for money. Discounted sales are good ways to reduce the cost of your Christmas shopping, but be aware of misleading marketing ploys – do your homework and shop around first before purchasing. This may require a little more of your time, but can benefit your pocket handsomely. These savings in turn can be used for other expenses such as entertainment.
Keep track of spending – It’s not necessary after every purchase to review your bank account, but its very easy to lose track of your spending and go over budget if you don’t review what you’ve spent. My suggestion is to keep tabs of what you spend daily with your TOTAL budget in mind.
Avoid incurring bad debt – where possible avoid using credit cards to pay for a holiday, or gifts for friends and family. Debt is the biggest destroyer of wealth. There is, however, good and bad debt. ‘Good’ debt is used to purchase assets which will appreciate over time or provide an income, such as property or a business. Credit card debt offers no growth and incurs high costs which is detrimental to financial well-being. Start living within your means and reduce this kind of ‘bad’ debt where possible.
Take responsibility for your financial decisions – We live in world of instant gratification. We want it all now! You know if you can afford to buy that luxury gift or new car or a trip to the Maldives. Lavish spending on credit especially if you can’t afford it should be avoided.
Be wary of criminals – the festive season is notorious for criminals trying to exploit people who are away from their businesses and homes. Make sure you are adequately insured to protect yourself and your assets.
Start the new year with a healthy attitude towards long term saving – Retiring comfortably is dependent on your saving habits and the life choices you make years before retirement. Get into the habit of regularly saving a portion of your salary every month which is a good start! The longer you do this, the more you save, the better off you will be in retirement.
Consider consulting an advisor – with the extra time available over the holidays, invest in yourself and consider consulting with a financial advisor.We all need to put into perspective where we are financially from time to time in order to ensure we are on track to reach our financial objectives.The festive season is a great time to do this and if you don’t have a financial plan or don’t know where to start, speak to a professional financial advisor who can assist you.