Being financially savvy during the festive season is a bit like wearing sensible shoes to a ball, or like driving a family sedan when others are in flashy sports cars. If you feel that watching your wallet will cramp your style, think again. There are many ways to enjoy the end-of-year celebrations without getting into debt.
‘People work hard all year and want to spoil themselves in December, but often don’t have the resources,’ says Kristin van den Berg, financial adviser at investment management firm Personal Trust. ‘The biggest enemy is short-term debt such as credit cards, personal loans and car repayments. Many people who overspend at this time of the year suffer from a financial hangover in January.’
South Africans of all income levels are living beyond their means and taking up more debt to pay for celebrations, presents and holidays. According to Eunice Sibiya, head of FNB Consumer Education, more than half of the country’s 19 million credit-active consumers already have impaired credit records and owe 75% or more of their income to creditors.
Have a game plan
To prevent any regrets, start by taking stock of your finances. ‘You need to sit down and look at your transactions because they mirror your spending patterns. Every cent matters,’ says Sibiya. ‘Understand your financial situation, set your goals and write them down where you can see them.’
Then, draw up a budget for your year-end expenses: All the entertainment, food, drink, travel and especially presents that need to be added to the fixed monthly costs. Online budget calculators, such as the Fin24 Budget Planner, can assist. This serves as your financial game plan or road map to navigate the festive spending. It also helps to know exactly what you want to buy and for whom. Stick to your plan, as it’s easy to get swept away by the holiday spirit and special offers.
Pay your insurance policies, long-term investments, rent or home loan and debt repayments first before even thinking of going on a shopping spree.
‘Don’t stop paying your debt, as this could have significant legal implications,’ says Leon Campher, CEO of the Association for Savings and Investments of South Africa (ASISA). ‘Prioritise debts in order of the most expensive, where you pay the highest interest rate, which will typically include store accounts and credit cards, to the least expensive such as your mortgage bond.’
If you’re lucky enough to get a bonus or 13th salary, use it to settle your debt before buying anything.
Van den Berg warns that credit cards shouldn’t be used as a loan facility because of the high interest rates. However, if you’re disciplined enough to pay them off by the end of each month, credit cards can work in your favour. Many have loyalty schemes (such as eBucks, Avios, uEarn and Vitality) that offer rewards and even cash back. Also look into retail or leisure loyalty programmes, such as SunRands by Tsogo Sun – they reward you for things you’re already spending money on.
Compare prices online. Check stock availability and avoid last-minute shopping, which leads to panic spending. Instead, make targeted trips to specific shops rather than spending a lot of time lingering in shopping malls.
Find out the store returns policy before buying presents, in case the recipient wants an exchange or refund, says consumer journalist Wendy Knowler. Will this require a receipt? How many days do you have to return it? Will you get a refund or credit voucher? She told East Coast Radio: ‘Some stores won’t take back non-defective goods at all. If there’s nothing wrong with the shirt or the doll or the box of building blocks, a store is not legally obliged to take it back at all. So you must ask – never assume.’
This particularly applies to luxury purchases and to designer boutiques or shops that don’t belong to a big retail chain.
Many people value quality time and experiences over consumerism. You could, for instance, save money by agreeing with friends and family on cost limits for gifts. Or draw a name from a hat and only buy a present for that person instead of the entire group.
Depending on your budget and imagination, you can build memories by gifting event tickets (theatre, concert, cinema or sports), an invitation to a game drive, wine tasting, helicopter flight or horse riding. Many activities, such as a beach outing or day hike, are virtually free, but can be fantastic.
Don’t let financial worries spoil your festive season – rather adjust your expectations. Don’t try to impress others by spending excessively, says Sibiya. ‘People often forget what is important, which is to spend time with family while recharging after a long year.’
But if you still want to splurge, go ahead – as long as you plan ahead and budget for it, not borrow. That’s the key to preventing a financial hangover in January.