The importance of financial discipline this festive season

2018-12-12 06:00

DESPITE President Cyril Ramaphosa’s economic stimulus plan launched in September to help jumpstart the economy, consumers should tighten their purse strings as the country starts gearing up for the festive season.

To avoid financial pitfalls, Vera Nagtegaal, executive head of Hippo.co.za, says it’s important to have a plan in place.

“A plan helps you get a better idea of how much you can spend over the holiday period. You can also see how much you will need to keep for January – especially because there’s an incredibly big gap between December and January pay days,” Nagtegaal explains. However, simply writing down what your desires and financial commitments are is not enough. You need to have a clear understanding of income versus expenses between December and January — and plan around that.

Nagtegaal says a 13th cheque, or bonus, or both should also be part of the financial planning for this period.

“The plan must be realistic; otherwise it’s doomed to fail,” Nagtegaal says.

While budgeting is important, you must also keep a close eye on any spending using your credit card – especially if it’s unplanned. Data from the National Credit Regulator shows that the value of credit granted tends to spike in the last three months of the year, and tapers off in the first quarter.

Nagtegaal says this trend is concerning and you should avoid taking on any credit simply to cover unnecessary expenses, such as Black Friday sales, as this will leave you worse off. Repaying debt incurred over the festive season becomes an added burden on your budget for the new year, so often the effect of low financial discipline might leave you paying for it well into the following year.

“It’s important that you evaluate where you are and to be truthful about your needs,” says Nagtegaal, who added that the prudent thing to do would be to prepare for the various sales events months in advance — especially because many of them have now become a fixture on the South African shopping calendar.

Nagtegaal says while planning and having a solid budget in place is a great first step, discipline is what will make navigating the festive season a lot less stressful: “One way of ensuring compliance with your plan is to prioritise the elements of the budget that will safeguard against reckless spending, such as putting savings away first and covering all necessary expenses. Where possible, it is also a good idea to try and take care of any January commitments as soon as possible, in order to take the post-December pressure off. If funds allow, paying school fees, rent, and other fixed costs such as monthly debit orders in advance can ease pressure. Parents with school-going children need to make sure that they have money to buy uniforms, stationery and other items necessary at the beginning of the year.”

Having a savings account can also be a helpful tool to stow away money before it’s spent on unnecessary items. Over the long-term, if staying accountable is an issue, setting up a stokvel arrangement can help keep you in check. You can decide on an amount to set aside on a specific date and a withdrawal date.

“Consumers who know they will struggle when it comes to impulsive spending should develop a system of accountability with someone they view as financially responsible. This person can be the voice of reason by providing a second opinion on whether a desired purchase is classified as a ‘want’ or a ‘need’,” advises Nagtegaal.

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