Slow down on spend­ing as you head into 2011

You will do your fam­ily a big favour over the long term if you save as much as you can in­stead of spend­ing mind­lessly, writes Neesa Mood­ley-Isaacs.

Weekend Argus (Saturday Edition) - - FINANCE -

Just as you should try to an­tic­i­pate what lies ahead when you drive, you need to be aware of your fi­nan­cial obli­ga­tions for the com­ing year when you plan your fi­nances over the fes­tive sea­son.

The hol­i­day sea­son is upon us, and peo­ple who are lucky enough to re­ceive a 13th cheque or year-end bonus may find that most, if not all, their wind­fall has been frit­tered away be­fore the sea­son has ended. They will then face a long, fru­gal pe­riod un­til they get their next pay cheque, at the end of Jan­uary.

The South African Sav­ings In­sti­tute (Sasi) has adopted the theme “Spend wisely, new year ahead” as part of an ed­u­ca­tion cam­paign to re­mind you to re­main aware of your fi­nan­cial re­spon­si­bil­i­ties next year.

Sasi has part­nered with the Na­tional Credit Reg­u­la­tor (NCR), the Fi­nan­cial Plan­ning In­sti­tute and the Na­tional Con­sumer Ed­u­ca­tion Fo­rum to ed­u­cate you about spend­ing wisely.

Prem Goven­der, the chair­per­son of Sasi, says it is un­for­tu­nate that year-end fes­tiv­i­ties of­ten turn into a “sea­son of mind­less spend­ing that can and does get out of con­trol as con­sumers spend money like there is no to­mor­row”.

The re­cent fi­nan­cial cri­sis has left many coun­tries, in­clud­ing South Africa, with a de­clin­ing level of sav­ings and in­creased un­em­ploy­ment, she says.

“These economies are now strug­gling to re­gain their pre-cri­sis growth rates. In South Africa, growth in real gross do­mes­tic prod­uct in­creased from a neg­a­tive 2.8 per­cent in the sec­ond quar­ter of 2009 to 3.2 per­cent in the third quar­ter of 2010, while gross do­mes­tic sav­ings in­creased marginally from 15.3 per­cent this time last year to 16.9 per­cent in the sec­ond quar­ter of 2010,” she says.

Goven­der says peo­ple do seem to be cut­ting back on their ex­pen­di­ture to some ex­tent but are still not sav­ing. “House­hold sav­ings as a per­cent­age of house­hold in­come has moved into neg­a­tive ter­ri­tory be­cause peo­ple are spend­ing more than they earn, but this has im­proved marginally – mov­ing from a neg­a­tive 0.4 per­cent in the sec­ond quar­ter of 2009 to 0.2 per­cent in the sec­ond quar­ter of 2010,” she says.

RIS­ING JOB­LESS­NESS

An­other prob­lem high­lighted by Sasi is that of in­creas­ing un­em­ploy­ment.

“To date, 4.3 mil­lion South Africans are un­em­ployed, com­pared with about 1.2 mil­lion this time last year. It is against these re­al­i­ties that Sasi con­tin­ues to ap­peal to con­sumers to start sav­ing as soon as they start earn­ing money. These sav­ings can cush­ion you in times of re­duced or no in­come, re­duc­ing your fi­nan­cial vul­ner­a­bil­ity.

“In these dif­fi­cult times, we hope that house­holds will ap­pre­ci­ate what they have rather than con­tin­u­ally striv­ing for more,” Goven­der says.

The num­ber of con­sumers who will fall be­hind with their debt re­pay­ments is ex­pected to in­crease over the fes­tive pe­riod. Abel Tshi­mole, the man­ager of reg­is­tra­tion at the NCR, says there were 8.59 mil­lion con­sumers with poor credit records by June this year.

He says you should be care­ful not to take on un­nec­es­sary debt, es­pe­cially to pay for presents and cel­e­bra­tions.

“Bear in mind that you still have to pay house­hold ac­counts, such as lights and wa­ter, in the new year and will need to pay for other costs, such as uni­forms and school fees,” Tshi­mole says.

Al­though it may make you feel good to splash out on ex­pen­sive gifts for your loved ones, this feel­ing is likely to be short-lived, be­cause they may come at a high price, he says.

“If you fail to keep up with your debt re­pay­ments, you could lose your most valu­able as­sets, in­clud­ing your home and car,” Tshi­mole says.

Paul Slot, the di­rec­tor of debt coun­selling fir m Oc­to­gen, says that you should set aside a per­cent­age of your year-end bonus or 13th cheque for sav­ings or an emer­gency fund.

“Above all, en­sure that you do not ne­glect the reg­u­lar monthly pay­ments, such as for wa­ter, elec­tric­ity and in­stal­ments on items such as in­surance, pen­sion and med­i­cal scheme cover,” he says.

Slot says you should ap­ply the prin­ci­ple of 35:25:35 when you draw up a monthly bud­get for the year ahead.

“We rec­om­mend that you al­lo­cate 35 per­cent of your monthly in­come to house­hold ex­pen­di­ture, 25 per­cent to fi­nan­cial ser­vices such as short-term and long-term in­surance, and 35 per­cent to debt re­pay­ments (in­clud­ing your home loan re­pay­ments). Five per­cent of your in­come should go to­wards emer­gency sav­ings. Ide­ally you should be sav­ing more, but this dis­ci­pline in your bud­get can help you im­prove your spend­ing pat­ter ns and ad­dress your debt,” Slot says.

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