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Johannesburg, South Africa, November 2015 – The year-end is full of financial commitments: holiday trips, festive season gifting and back-to-school expenses. How many people are fully prepared for this time of year that brings with it some fairly hefty financial commitments?
“One of the main problems at this time of year is how to prioritise your spending”, explains Mark Young, deputy CEO of Bayport Financial Services, South Africa. “Often there are emotional pressures too, especially when combining December holidays and Christmas presents. But the best approach is to plan your budget in advance so that you can consider it objectively and set money aside to cover all the important costs.” When deciding on what the important costs are, most people lose sight of the difference between a ‘necessity’ and a ‘luxury’ at this time of year. There are seven categories of necessary expense, namely, accommodation, transport, food, education, medical, water and electricity and maintenance.
A luxury, however, is any item that you can live without such as a DStv subscription, eating out at restaurants or a pair of fancy sneakers. “It may not seem like a luxury,” explains Mark, “but the reality is that these items generally are classed as ‘wants’ not ‘needs’, meaning you really can live without them.”
To help you keep control over expenses that can so easily run away from you this December, Bayport suggests a four-step approach: track, compare, prioritise and act.Tracking is about understanding your spending habits. By keeping a record of everything you spend over a 30-day period you can get a clear picture of where your money goes. Then look at how much money you spend on necessities and how much on luxuries, and compare your income with your expenses. Your income must never be less than your expenses. If you do have debt, either in the form of a loan or an overdraft, you have to factor in how much that costs you each month. Once you have the complete picture of your income vs. expenses, set yourself some goals relating to your upcoming expenses and how much more you think you’ll need and by when. Another important tip is to match your planning to your salary date so that you can make sure you’ll receive your income in time to cover the expenses you anticipate.
Using your goals, prioritise which expenses are most important and where you want your money to go. The necessities and debt costs will always feature on this list, along with once-off expenses such as back-to-school costs in January. Work out what these are likely to be and see where you can save money to make up any shortfalls. Other end-of-year expenses might not be as much of a priority so be realistic: is it a ‘need’ or a ‘want’?
Finally, and most importantly, you have to act on your plan. Many people develop a financial plan but, when caught in the moment, they forget about it and justify the unplanned expense. “This is where a great plan can unravel and leave you in real trouble in January,” says Mark.
While you can’t anticipate every expense, if you do find yourself spending on unplanned items, review your budget as soon as possible to see where you can make a saving so that you don’t get caught out later on. It’s all about regular management and making your money work for you. Of course, the best approach is to save for the festive season. By implementing the four steps earlier in the year, you can work out how much you will likely need and start saving a small amount every month so that you have your holiday fund by December.
If, however, you do not have time to save and your tracking indicates that you may need to apply for financial assistance to make it through the season ahead, it’s important to only borrow the amount of money you need. “Distinguishing your ‘needs’ from your ‘wants’ is a really important process before applying for any form of financial assistance,” concludes Mark.