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Beware of the festive splurge

Replace bad spending patterns with savings habits

Black Friday shoppers are expected to flock to shops to take advantage of massive discounts by retailers. Experts caution against taking on debt for the specials.
Black Friday shoppers are expected to flock to shops to take advantage of massive discounts by retailers. Experts caution against taking on debt for the specials.
Image: Esa Alexander

The festive holidays can be a tempting time financially, starting on Black Friday and extending into the New Year sales, with marketers trying to entice you to buy, often on credit.

The festive season is often a time for celebration, shopping, parties and hosting family and all these come at a cost. With some companies not paying bonuses to their employees, many will find themselves being forced to stretch their last salary of the year into January.

Some companies pay employees in mid-December, so salaries have to stretch a month-and-a-half until the end of January. Many employers cannot pay full 13th cheques or year-end bonuses, so consumers have no cushion to cover the extra festive-season expenses. In both cases, many turn to loans to make up the difference.

Experts have cautioned consumers, especially those with the luxury of getting the bonus, to tread carefully during the festive silly season because by the time they go back to work in January and the children return to school, they start the New Year playing financial catch-up. This often result in people taking on even more debt.

Benay Sager, chairperson of the National Debt Counsellors’ Association, says this cycle repeats itself year after year.

“It’s a treacherous tide, but with some planning you can swim against it. Our members see enquiries about debt management spike every January and February. This has intensified over the past two years as higher inflation and interest rates exacerbate the situation.

“Typically, what we see happening in mid-January and extending into February is that consumers find themselves in a pinch and borrow money to make it through until they get paid. The problem is that the repayments on these loans add long-term pressure on households, which are only just keeping their heads above water. One unexpected expense or emergency can then result in serious financial difficulty.”

Claire Klassen, a consumer financial education specialist, says financial wellness starts with the recognition of the bad spending habits you have and replacing those bad habits with good spending or savings habits.

“Financial wellness has more to do with effective budgeting than people think. Once you understand that money is a tool for reaching your financial aspirations in life, you will start thinking about money differently. You will start realising that money is not to be wasted and each purchasing decision made needs to be done in a cautious manner and accounted for,” said Klassen. 

She says it is important for people to understand their spending habit and before budgeting. 

“Make a list of what you earn versus what you spend. The best way to make it easier to budget is to write down or keep an excel spreadsheet of your expenses for the month before you start to budget or you can use WeThinkCode budgeting app to help you manage your expenses.

“Settle debt with the highest interest first, like a credit card, home loan, or vehicle finance, while still paying towards your other smaller debts. Don’t buy luxury items with credit, save towards them and rather pay cash. Calculate how many months it will take you to purchase the item at an affordable amount per month, then place it in your budget, mark it as a short-term or long-term goal,” said Klassen. 

Sager suggests the following for people wanting to swim against the tide of borrowing this holiday period:

Plan ahead: If you get paid early in December, remember you will need to stretch your salary until the next paycheque. Allocate money for normal living expenses for the full period, factoring in January expenses, before you decide how much to spend on gifts and entertainment.

Also consider your existing debit orders will still run in December. If there isn’t enough money in your account to cover these, you might fall behind on your payments and your credit score could be affected. Your bank may also penalise you by charging additional fees.

Be considered: If you are lucky enough to get a bonus, you could suddenly have extra money in your account. Although you may feel flush, resist the temptation to splurge. Think first about your financial commitments and consider saving or investing some to provide a financial cushion for the New Year.

Get help if you need itAfter a difficult year, most of us need a break and time to recharge. That is not going to happen if you spend the holidays worrying about how much you owe and how you are going to make ends meet in January.

A reputable debt counsellor will do a free assessment, advise whether you can benefit from debt counselling and explain how the process works.

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