Amidst the frantic pace of work and living, you may not have noticed that there are only four short months – and paychecks – left until the festive season. But with December speeding towards us, now is the time to put some simple money-wise plans in place to help ensure a stress-free holiday and a debt free start to 2017.
Niel Fourie, Public Policy Actuary at the Actuarial Society of South Africa, warns that 2016 has been a difficult year for many businesses. This means that you may not be able to rely on a thirteenth paycheck to ease you through the financial pressures of the holidays or help with New Year expenses such as school fees, uniforms and textbooks.
“With low economic growth, rising interest rates and the possibility of a credit downgrade, it is vital that you avoid falling into debt to fund holidays and gifts this December. The good news, however, is that you still have time to lay the foundation for a well-deserved break now without putting yourself under unnecessary financial strain come 2017.”
To help guide you through the next four months, Fourie has provided five simple tips for you to achieve your perfect holiday:
Tip 1: Set your holiday budget goals
The first step to making your holiday plans is to look at what you can reasonably afford by examining your monthly budget, and setting yourself practical holiday budget goals to save for.
“You may be lucky enough to have some money left spare at the end of each month that you can put towards your holiday spending. Most people however likely won’t, and your budget will then reveal places you can cut back on your spending to begin saving towards your goals,” he says.
Fourie adds that the first place to cut back is on luxuries such as daily cappuccinos, take-aways and nights out at movies and restaurants.
“Bring your lunch to work every day instead of buying it in, and look at ways to cut back on your grocery spending,” he suggests.
“Let the thoughts of your perfect holiday ahead motivate you to get creative with your budgeting, and share some ideas among your friends and family.”
Tip 2: Create a holiday fund
After cutting back on your spending, place the money earmarked for your holiday in a separate account out of sight and mind, says Fourie.
“The easiest way to make sure that you save this money and resist the temptation to spend in the months before December is to place the money in a separate account at the beginning of each month. A fixed interest or money market account would likely be the most appropriate for your short-term saving goals,” he suggests.
“Having a separate account with a fixed amount will help to prevent you from overspending come the holiday season and placing yourself into the red before the New Year.”
Fourie states that it is much cheaper to save now and be able to purchase items up front rather than repaying credit card debts with high interest rates over the following months.
“By saving just R1000 a month now, for instance, you would have earned R4000 to splurge on in December without resorting to store accounts or credit cards.”
Tip 3: Keep up with your debt repayments
Fourie states that an excellent gift to yourself is to keep whittling away at your debts now in order to begin 2017 on a much stronger financial foot.
“Think of your holiday as a welcome pit-stop on a long marathon. It’s important to reward yourself for another year of hard work, but you also need to keep your long-term goals and the journey ahead in mind – such as funding a child’s education, buying a house and earning a liveable income into your retirement,” he explains.
“Gradually freeing yourself of debt now will lift unnecessary weight off your shoulders as you continue along the rest of your financial path so that you can achieve the rest of your goals that much quicker.”
Fourie advises that as you cut back on your spending, also channel some of this money towards increasing your debt repayments.
“Make paying off expensive debt with high interest rates such as credit cards, store accounts and car repayments your first priority. You can then turn your attention to long-term debt such as your mortgage which will likely have a lower interest rate,” he says.
Tip 4: Plan your gifts ahead
For those who celebrate Christmas, planning and buying gifts now could save you hundreds of Rands down the line, says Fourie.
“By planning ahead now, you have time to be creative with your gifts and can get what you need before retailers implement Christmas shopping prices, rather than rushing out at the last minute and buying whatever you can find at a holiday premium,” he observes.
“If you wish to use your money to fund a special dinner, or a short getaway trip instead of buying expensive presents, you could also suggest that everyone buys one gift worth R200 to be exchanged via a number system instead of buying gifts for adult members of the family, or implement a Secret Santa system.”
He further notes that as expensive toys and designer clothing will eventually be put aside, parents wishing to make a meaningful investment for their children as a gift could look into setting up a tax-free savings account on their behalf instead.
“With tax-free savings accounts you can invest a maximum of R30 000 a year up to a lifetime limit of R500 000 tax-free, which represents a fantastic opportunity to give your child a financial step-up in life. Instead of expensive gifts, you have time now to look into setting up a monthly debit order of for example R250 into a tax-free account on your child’s behalf,” he explains.
Tip 5: Get your financial ducks in a row
While you are in financial planning mode, take the time to clear some necessary financial tasks from your plate now so that you can put your feet up and relax during your break, advises Fourie.
Tasks you should address include:
Ensuring you have an updated will: Facing up to your mortality is a task you will want to have dealt with before you go on holiday. As your circumstances may have changed over the past year, review your will to ensure it still addresses all your beneficiaries and assets according to your wishes.
Checking your insurance cover: Addressing topics of death, disability and other unexpected events is also best done before your vacation. Review the terms of your life policy, disability cover, short-term insurance and medical aid, and check whether you are adequately covered should the worst happen. Make sure that your loved ones know where to find the details of these policies.
Comparing the costs of financial products: Do some reading and shop around to make sure that you are still paying appropriate insurance premiums and medical aid contributions for your lifestyle.
Updating your financial goals: You may have had a child, earned a promotion or ticked an important goal such as buying a home off your list. Update your financial goals and adjust your saving and investment strategies as necessary.
“A trusted financial adviser will be able to guide you through these tasks, as well as offer you valuable advice on any financial gifts and investments you wish to look into,” states Fourie.
“It may seem like there is plenty of time to plan and save, but with the fast pace of life it is easy to suddenly find yourself coming up short when it comes to funding holiday and New Year expenses. However, by looking ahead now, you will be able to put your feet up and enjoy your December vacation guilt free.”