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It’s that time of year again and if you have already received or are about to receive your December pay cheque with your bonus, remember to keep a steady head over the silly season and avoid the temptation to spend money on things you don’t need, writes Neesa Moodley
“The key thing to remember is that it is going to be a month and a half until you receive your next pay cheque,” says Boitumelo Mothoagae, financial adviser and head of customer relationship management at Liberty.
“Figure out exactly what your expenses will be for December and January, and then work out a holiday budget based on what is left.”
Remember that presents and festive spending don’t form part of your regular budget, so your regular expenses, particularly your debit orders, should be taken into account before you allocate funds towards a new flat-screen TV or the latest Sony PlayStation.
To help you keep track of your wallet this holiday, Mothoagae suggests you use the following pointers:
. Set aside funds now for your end-of-December debit orders and expenses in the new year.
What you can also do is make arrangements for your debtors to debit you early (around the time that you get paid) if you know that you will be unable to resist using the money. In this way, you will pay all your debit orders in advance.
. Account for January expenses, such as school uniforms, stationery, school fees and transport to work.
Do not use funds you will need in January to buy Christmas gifts.
. Instead of buying gifts for everyone, sit down with your family and agree to have a secret Santa this year – each person buys and receives one gift only. You can have a price limit so that you all receive a gift of similar value and no one overspends.
The secret Santa idea also works well with work colleagues.
. If you are going away on holiday, draw up a holiday budget and make sure you stick to it. Your budget should take into account the following costs:
, Money for transport.
, Airport taxes if you are flying.
, Entrance fees to tourist attractions (such as Table Mountain).
, Money for all your meals if your accommodation does not cater for meals.
, Extra money if you plan to buy gifts on holiday.
, Medical insurance so that you are covered while outside the country and won’t have to spend extra in a medical emergency.
, An emergency fund for any emergencies that may occur, such as your car breaking down or if you lose your luggage.
. Draw the whole family in and have a “budget discussion” so that you are all on the same page and your family won’t place unnecessary demands on you financially.
List the things that will require money and decide who will be responsible for what aspect of the budget to ensure that you are all accountable for ensuring frugal spending. In this way, you also spread the costs, which become cheaper per person.
. When it comes to credit, you could be tempted to use this facility over the festive season. If you have huge amounts of debt, you should seriously consider using your bonus to pay off your debt so that you can start January with a clean slate. However, if you do this, remember you need to steer clear of using credit facilities once you have paid them off. The last thing you want is to flush your bonus away in a never-ending deluge of debt.
. Pay off your debt, starting with the highest interest-bearing debt. Typically, your credit and store cards attract the highest interest rates.
“Remember that any money you spend on credit over the festive season will have to be repaid once the Christmas lights go off,” warns Mothoagae.
She also points out that if you delay paying off your debt, the amount you owe is going to attract interest.
5 ways to make the most of this year’s bonus
By using your bonus smartly, you can take some pressure off meeting those monthly bills next year.
Pay less for your short-term insurance
Short-term insurers are prepared to give you a discount of up to 15% on premiums if you pay them as a lump sum at the beginning of the year. This saves them the cost of collecting by debit order and, because they have your money upfront, there is no risk of default and less of cancellation. You also know your valuables are covered for the year.
Make sure you take the monthly premium you would have been paying and use that to either escalate your debt payments or add to your monthly investments.
Protect yourself against interest rate hikes
Any extra money you deposit into your home loan immediately reduces the capital balance and saves you interest. Even if you just deposit R10 000 into a R1 million mortgage, you’ll save R64 800 in interest over a 20-year period.
But an added benefit is that it can protect you against a possible rate hike. On a R1 million mortgage, a 100-basis-point rate hike would increase your annual mortgage payment by R10 000, or R833 a month. By paying money upfront into your mortgage, you can create a buffer against future rate hikes.
Protect against increases in school fees
Most schools offer discounts of up to 7% if you pay the fees in full at the beginning of the year. Not only does paying school fees upfront save you money, it gives you a jump start for the next year’s school fees.
By saving the school fees that you would have paid each month in a high-interest-earning account, the interest earned combined with the discount will give you a great buffer on the following year’s increases.
Pay less tax
You can invest 15% of your bonus tax-free into a retirement annuity or top up your company retirement fund. This will boost your retirement savings at the expense of the receiver of revenue.
Plan for your next holiday
You can save a significant amount of money if you book your flights months in advance. Popular routes during the peak times of July or December book up fast and the lowest airfares are usually sold out 11 months earlier. You would have also spread the costs of the holiday over time, so you are not paying for it all in one month.
On the other hand, great package deals are usually released about two months before the holidays, so keep a lump sum aside to take advantage of specials.
Funny quote
Dear Santa, this year all I ask for is a big fat bank account and a slim body. Please don’t mix up the two like you did last year.
This is the last edition of My Money, My Lifestyle for 2015. We will publish again on January 17 and look forward to helping you stick to those financial resolutions. Keep writing to us at personalfinance@citypress.co.za
