If you're one of the lucky ones who scooped a bonus payout this year, use it wisely.
This is what financial advisers recommend as they stress the need for consumers to rid themselves of debt. But it’s easier said than done when your salary is barely enough to cover the essentials.
Thobeka Gxowa (39), a cleaner at a private hospital, earns R3 500 a month. The mother of three pockets a bonus, but her windfall will go straight to paying her immediate debt so that she can get more credit in the new year.
“I earn peanuts and incurred too much debt at the end of the year,” she says. “When everyone celebrates, I’m forced to settle outstanding debt and I’m left with nothing.”
Her extra income will be gone so fast that Christmas and New Year will be covered by the cash and groceries she receives from stokvels. And as she starts budgeting for school stationery, she fears she’ll have to get new loans before the end of January.
It’s all too easy to overspend during the festive season, cautions Eunice Sibiya, First National Bank’s Head of Consumer Education.
We asked Eunice and other experts for advice on how to handle your year-end finances.
DON’T GET CARRIED AWAY A break from work is the perfect time for fun and spending money with family and friends.“But look after your money first,” Eunice advises. “Avoid spending more time at shopping malls, buying expensive gifts and spending money you don’t have.
Plan before you’re paid early in December. “The biggest mistake we make when it comes is to go shopping with family members and friends. Shop alone and have a shopping list to ensure you’re less distracted and don’t overspend.”
SHOP SMART Bruce Fleming of the Financial Planning Institute. suggests starting to shop for presents earlier in the year, to spread the expenses over several paycheques.
He points out that by shopping out of season you’re also sure to find better deals which will save you money, instead of paying high prices at the end of the year.
“Resist the temptation to buy on credit and hire-purchase agreements because this could add to your debt hangover,” Bruce cautions.
Eunice also suggests that the adults in the family may agree to forego buying gifts for each other.
Mary notes that it’s important to pay off short-term loans first because they attract high interest. “It does not make sense to invest, for example, for an annual 10 % interest, instead of paying off loans with 22 % or more interest,” Mary says.
“First pay off the most expensive debt, like personal loans or credit card debt.” advises Bruce.
THINK LONG-TERM Eunice says, “When your monthly salary and bonus are deposited, pay January bills that are due immediately. Take out extra cash from your savings account and pay your bond [or your rent] so you’re not tempted to overspend at sales specials.”
Mary Fourie, Chief Operations Officer at Kanan Wealth, recommends looking at an even bigger picture than that. She advises workers like Thobeka to save 40 % of their bonuses in long-term investments, such as retirement annuities, and use the rest to settle any outstanding debt.
Saving money for a rainy day should always be a priority, according to Bruce.
Even if you have a lot of debt to settle, “consider putting 15 % of your bonus into your retirement annuity to bolster retirement savings,” he suggests.
So before you rush out to the shopping centre to splurge on things you don’t need, take a moment to think about lessening your financial load in the new year with any extra cash you earn or receive this holiday.