A lot of us look forward to the end of the year to wind down, relax and enjoy quality time with family and friends, especially if it’s been a particularly tough year. What about the financial hangover the next year?
It’s so easy to overspend during the festive season, as we get caught up in the excitement and celebrations at the end of the year.
Here are a few helpful tips to plan and keep track of your spending to achieve this:
- Assess each purchase
You are your own finance minister and must therefore assess all purchases on merit. The best way to do this is to ask yourself the following questions:
- Is it necessary?
- Is this an impulse purchase?
- Most importantly, can I afford it?
- Set a holiday budget
Consider setting a cap for general spending on your total holiday expenses. This would include travel, gifts and entertainment. But be realistic about your budget. Setting your cap too high will defeat the purpose of your budget and too low a budget will result in frustration and overspending. Allow for some flexibility, but try to stick to your budget as best you can. Some ways to save costs and stay within your budget could be to:
- Entertain at home instead of going out;
- Travel locally instead of internationally; and
- Have predetermined gift values for each person you buy for and stick to it.
- Save a portion of your bonus
If you are lucky enough to have a job and have earned a bonus, save a portion of this into a money market fund or unit trust immediately. Saving first, before you spend, automatically reduces the disposable income in your bank account and ensures accessibility to funds later for emergencies and/or the longest month of the year, aka January. Preferably of course, I suggest avoiding access to these funds all together if possible. Instead, create a healthy habit of regular savings contributions via debit order and not just once off in December.
- Look for sales
Online shopping and annual sales such as Black Friday or New Year’s sales can offer value for money. Discounted sales are good ways to reduce the cost of your Christmas shopping, but be aware of misleading marketing ploys – do your homework and shop around first before purchasing. This may require a little more of your time, but can benefit your pocket handsomely. These savings in turn can be used for other expenses such as entertainment.
- Keep track of spending
It’s not necessary after every purchase to review your bank account, but it’s very easy to lose track of your spending and go over budget if you don’t review what you’ve spent. My suggestion is to keep tabs of what you spend daily with your total budget in mind.
- Avoid incurring bad debt
Where possible avoid using credit cards to pay for a holiday, or gifts for friends and family. Debt is the biggest destroyer of wealth. There is, however, good and bad debt. ‘Good’ debt is used to purchase assets which will appreciate over time or provide an income, such as property or a business. Credit card debt offers no growth and incurs high costs, which is detrimental to your financial well-being. Start living within your means and reduce this kind of ‘bad’ debt where possible.
- Take responsibility for your financial decisions
We live in a world of instant gratification. We want it all now. You know if you can afford to buy that luxury gift or new car or a trip to the Maldives. Lavish spending on credit, especially if you can’t afford it, should be avoided.
- Be wary of criminals
The festive season is notorious for criminals trying to exploit people who are away from their businesses and homes. Make sure you are adequately insured to protect yourself and your assets.
- Start the New Year with a healthy attitude towards long-term saving
Retiring comfortably is dependent on your saving habits and the life choices you make years before retirement. Get into the habit of regularly saving a portion of your salary every month, which is a good start. The longer you do this, the more you save, the better off you will be in retirement.
- Consider consulting an advisor
With the extra time available over the holidays, invest in yourself and consider consulting with a financial advisor. We all need to put into perspective where we are financially from time to time, in order to ensure that we are on track to reach our financial objectives.
The festive season is a great time to do this and if you don’t have a financial plan or don’t know where to start, speak to a professional financial advisor who can assist you.
Author: Gesture Chidhanguro