It’s been a long, tough year and as the festive season gets underway, you might be tempted to think that loosening the purse strings over this period may be the best way to reward yourself for surviving the challenges of 2012.
Standard Bank’s head of home loans, Steven Barker, feels that a different approach would be far more rewarding and is the best gift you could give yourself at this time of year. “South African home owners have been under significant financial strain over the past few years, as evidenced by the high debt to income ratios which continue to characterise many people’s financial profiles.
“In this context, the December period should be viewed as a good time to reflect and implement a sound financial plan for 2013, rather than a period in which to spend too much money on short term, feel-good moments which can place you under pressure in the New Year.”
In this vein, Barker says that those who receive bonuses or thirteenth cheques in December should practice a little discipline and use some of the extra money to reduce debt, particularly large commitments such as home loans. He explains that this principle is particularly important when it comes to home loans as a mortgage is typically the single biggest debt the average person will incur during their lifetime.
“Even a few hundred rand a month extra paid into a home loan can bring down the interest burden and the term of a loan significantly which can save homeowners thousands of rands in the long term.”
In terms of deals which offer tempting ‘payment holidays’, Barker says these should be avoided, particularly if they relate to cars and homes. “Remember that a monthly payment is required on your home loan. Taking a holiday from your payment will not benefit you in the long run, as it will simply cost you more over the long term.”
But what about having some fun during the holidays? “Try to plan outings, holidays and fun events in advance and shop around for the best deals as spur of the moment decisions can result in short-lived moments of enjoyment that cost you dearly in the long term,” advises Barker.
Barker adds that the summer holidays can be challenging as many people get paid earlier than usual in December which makes managing money until the end of January tricky. Additionally, he says a bonus or thirteenth cheque provides a false sense of increased earnings which makes people feel that they can spend more without necessarily watching the budget.
“The problem of course, is that your month-end payment commitments for December aren’t going to go away and January typically brings more expenses than most other months because of school fees, stationery and uniforms.
“Simply put, all that’s required to avoid a financial headache in the New Year is a little discipline and planning which will help you avoid spending the rest of 2013 trying to recover from a few moments of silliness in December.”
