The last few months of the year often sees an increase in spending, with South Africans splashing out their hard-earned cash during the festive season. The mindset to buy more is encouraged by annual bonuses, sales, such as Black Friday, which drive shop traffic, shifts in spending to leisure activities and preparations for January. However, consumers need to learn how to manage their money wisely to avoid an accumulation of debt as South Africa experiences the first recession since 2009 and rising costs.
The country has been experiencing negative economic growth over the last two quarters, with the economy shrinking by 0.7%, according to Statistics South Africa. This has lead to a technical recession and has heightened the risk of suffering yet another credit downgrade. The effects of a recession can really impact consumers and should be taken into consideration when choosing to spend and save. The fall in the Rand has lead to imported goods such as oil to be more expensive, further increasing petrol prices.
Prices of food items also continue to rise and families are already feeling the economic pinch, as the end of the year approaches. The Bureau for Food and Agriculture Policy (BFAP) has said that without a reduction in spending, 54% of the population aged 15 years and older will not be able to afford the BFAP thrifty balanced food basket. The average cost for 2018 has been estimated at R2,786 for a family of four, 2.7% higher the average cost in 2017. The food basket includes 29 basic food items that range from maize meal to sunflower oil.
The urge to spend during the festive season can lead to consumers taking on unnecessary debt due to social pressures. Financial planning will be key to maintaining their lifestyle and reduce the chance of debt that could accumulate with the added seasonal spending.
Here are a few tips on how to manage your money wisely to protect your finances during the upcoming season:
Set a budget for your spending- the first step to this, is understanding how much money you have to spend. Be honest. Once you've made a list of all your regular monthly expenses, see what is left over and how it can be assigned to your expected expenses over the season. To avoid spending more than you can afford, it helps to state a number that you can't go over, so if pressures do arise you aren’t swayed to spend.
Make a list- it's a lot easier to stick to a budget when you know what you're looking for. This will also help you to shop around and research the best price when buying those items. Being proactive in making one will allow you to start shopping ahead of time so you don't end up spending a lot of money all at once.
Use savings wisely- make sure you know how the extra spend is going to be financed. You can use your short-term savings for the additional expenses that accrue and will reduce the temptation of digging into your longer-term savings or buying things on credit.
Beware of credit- using a credit card for your purchases is an expensive way to borrow money that you might not have. Make sure you understand the interest rates that are associated and don’t get distracted by “no deposit” deals as they could end up costing you more in the long run.
Get advice- if you are unsure on how to manage your money, speak to your financial consultant about your current spending habits and goals.
The festive season doesn't have to propel you into a downward financial spiral, and by following these tips you can make sure you don't experience the financial blues in January. Staying on top of your finances is all about planning, and our financial consultants at Standard Bank can help to keep you “in check” with managing your finances to avoid spending more than you can afford over the next few months.