Money tips to avoid the Jan­uary blues

At the end of the year, the temp­ta­tion to splurge is mas­sive. But this is of­ten a bad idea – here are a few tips on how you can top up your sav­ings and re­duce your debt this De­cem­ber.

Finweek English Edition - - MARKET PLACE - Ed­i­to­rial@fin­ Paul Leonard is re­gional head: East­ern Cape at Ci­tadel.

there­are three key ways to build wealth, what­ever your in­come level: spend less, save (or, more ac­cu­rately, in­vest) more and get a bet­ter re­turn on your sav­ings. And De­cem­ber pro­vides an ex­cel­lent op­por­tu­nity to put the first two into prac­tice.

Mil­lions of peo­ple are se­duced by the siren call of ma­te­ri­al­ism, which sounds out the loud­est dur­ing De­cem­ber. TV ad­verts, bill­boards, mag­a­zine and cin­ema ad­verts are all geared to en­cour­age you to spend heartily dur­ing the fes­tive sea­son. Whether it is for Christ­mas or Chanukah gift­ing, New Year mer­ri­ment or that wellde­served hol­i­day, we are bom­barded with ex­hor­ta­tions to spend, spend, spend. Yet – when the wal­let is empty and the credit card is maxed out – most peo­ple ul­ti­mately come to the re­al­i­sa­tion that money and pos­ses­sions do not guar­an­tee hap­pi­ness.

As we hur­tle to­wards the end of the year, most of us are looking for­ward to tak­ing some time off. We can’t wait to be able to take a hol­i­day af­ter a year of hard work. We are al­most there, there’s a faint smell of co­conut sun­screen in the air, but most of us still have to put in some hard work. So don’t take your eye off the ball just yet.

Peo­ple of­ten make the mis­take of spend­ing dif­fer­ently dur­ing De­cem­ber, be­liev­ing that it’s just one month and so it’s okay to splurge. And per­haps the worst mis­take to make is to try to im­press oth­ers or “keep up” with your friends. It is far bet­ter to treat the fes­tive sea­son just like any other month: stick to your bud­get and only buy ne­ces­si­ties. At the same time, keep an eye on Jan­uary when there may be sig­nif­i­cant ad­di­tional ex­penses wait­ing for you, such as school fees and higher med­i­cal aid rates.

The first part of cre­at­ing wealth is to pre­serve the cap­i­tal and in­come that you do have. Try to hold back this De­cem­ber. Where pos­si­ble, go for the in­ex­pen­sive op­tion. Make a game out of it. And what­ever you do, do not go into debt to finance gifts, en­ter­tain­ment and hol­i­days. There is al­ways a way to make do with what you have.

The other side of the coin is to in­vest more. If you are for­tu­nate enough to be em­ployed and re­ceive a 13th cheque, in­vest the money im­me­di­ately. This is the most pain­less way of pre­serv­ing and cre­at­ing wealth – to use funds that are out­side of your nor­mal in­come, funds that you don’t usu­ally have to rely on to get by each month. The temp­ta­tion to use a bonus to buy of­ten mean­ing­less treats and plea­sures can be strong, but giv­ing in to it will pre­vent you from es­tab­lish­ing true wealth.

Con­sider pre­par­ing early for tax sea­son. You can in­vest up to R30 000 per tax year in a tax-free sav­ings ac­count. If you haven’t al­ready opened one, take this op­por­tu­nity to do so. If you have one, be sure you’ve added your R30 000 for the cur­rent tax year. The ad­van­tage of these funds is that you pay no tax on any in­ter­est in­come or div­i­dends earned by the in­vest­ment and there is no cap­i­tal gains tax (CGT) payable when you with­draw your in­vest­ment.

You could also use any ex­tra in­come that you re­ceive in De­cem­ber to top up your retirement an­nu­ities (RAs). Con­tri­bu­tions to RAs are tax de­ductible up to 27.5% of your gross re­mu­ner­a­tion or tax­able in­come (which­ever is the higher and sub­ject to an annual limit of R350 000). In ad­di­tion, the in­vest­ment re­turns within the RA are tax free and the ben­e­fits are also taxed on a favourable ba­sis, mak­ing this a highly ef­fi­cient form of in­vest­ment. You may think that De­cem­ber is a dif­fi­cult month in which to make spend­ing cuts and to in­vest more, but it can be an easy one. This is espe­cially true if you re­ceive a 13th cheque, which presents the per­fect op­por­tu­nity to ei­ther re­duce debt or to in­vest and set your­self up for a life­time of wealth cre­ation.

If you have not al­ready done so, con­sider also en­gag­ing the ser­vices of an ac­cred­ited fi­nan­cial ad­viser. Bear­ing in mind the old adage, “if you fail to plan, you ef­fec­tively plan to fail”, it is per­ti­nent to keep your fi­nan­cial well-be­ing top of mind and plan ac­cord­ingly. Start the new year on a firm foot­ing, hav­ing planned ahead for the year – and years – ahead and stuck to your bud­get for De­cem­ber.

What­ever you do, do not go into debt to finance gifts, en­ter­tain­ment and hol­i­days.

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