Start 2013 on a Sound Financial Note

Private Property South Africa

2012 has been an extremely challenging year for many and as the festive season draws near, the temptation to splurge on associated expenses, expensive holidays, big restaurant dinners and life’s little luxuries is hard to resist.

Sugendhree Reddy, head of personal markets at Standard Bank, says the festive season should be seen as a time when people need to be particularly careful with their money, as overspending now may hamstring them financially well beyond December.

“The reality is that the economy isn’t what it once was and people across the board are struggling to make ends meet. You only need to look at the latest debt-to-income ratios to realise the gravity of the situation. All indications are that 2013 will be just as challenging, if not more so than 2012. With this in mind, it has become extremely important to not just live in the moment, but also prepare for a challenging year ahead,” she says.

“The global economy is expected to remain sluggish for the foreseeable future, and local factors such as higher electricity and fuel prices will no doubt cause further hardship in the months to come.”

With this in mind, Ms Reddy says it’s vital to think beyond the silly season and consider the impact that overspending now will have on personal financial fitness in 2013. Key to this is planning ahead. “It’s quite possible to enjoy the festive season without having to endure paying off debt months afterwards, provided you plan accordingly.”

First, establish what you can realistically afford to spend over the festive season. “Unpack every cent of your income and weigh it against your fixed expenses such as your bond, car repayment, food, petrol and school fees.

“Once you’ve established your basic costs, you will have a clear picture of what you can reasonably set aside for any festive season indulgences.”

Spending over the festive season shouldn’t impact any emergency, medium or long term savings you have in place. Dipping into such savings to fund a purchase could be a mistake and you should re-think it explains Ms Reddy.

“If you can’t afford a specific item, try and find a cheaper alternative, or accept that you may have to go without it. Chances are that it falls under the bracket of ‘I want’ rather than ‘I need’ and this means it isn’t worth digging into your savings – or worse, getting into debt for.”

At this time of year people may unwisely skip house payments, take out loans to go on holiday or push their credit card limits. This type of practice could lead to payment defaults further down the line and place an unnecessary burden on your ability to service daily household expenses. Worse still, it could negatively affect your credit rating too.

“If you feel it’s necessary to take out a loan or go into debt over the festive season, consider this very carefully. Double check the interest rates and the terms and conditions. Only take out a loan if you are absolutely sure you can afford the repayments while still saving and meeting your other financial commitments.”

The fact that most people get paid early in December also tends to drive unhealthy spending patterns. “If you do get paid early, it’s essential to remind yourself that your money has to stretch all the way to the end of January,” she says.

Ms Reddy says that planning ahead gives you a number of ways to get through the festive season affordably. An affordable holiday is a happy one.

“If you know you want to go on holiday at the end of the year, start putting aside money every month from the beginning of the year. It’s also wise to take advantage of discounted holiday specials earlier in the year, as holiday packages sold around the end of the year are generally sold at a premium.”

Ms Reddy also advises devising a gift strategy if you will be buying Christmas gifts.

“Don’t be shy to discuss a present strategy with the people that you are going to be spending Christmas with. For example put a cost limit on presents, restrict present giving to children only or have everyone bring a single gift of equal value to be exchanged.”

If you are one of the lucky few who still receives a 13th cheque, think twice before spending it all on Christmas luxuries. “Use a healthy portion of your bonus to settle a debt or put it towards your bond and use the rest to spoil yourself or your loved ones. That way you’ll start 2013 owing less and you won’t feel as if you’ve missed out on all the fun of the festive season.”

The end of the year shouldn’t be about ignoring the budget and indulging for a few short weeks. “Instead take the time to enjoy life’s simple pleasures with the people you love. Remember, the festive season comes once a year. Your financial situation will stay with you all year round.”

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