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.
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.
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.