Old Mutual cautions against excessive spending over the festive season

The end of the year looms around the corner. While many South Africans are recovering from the after-effects of an eventful 2010, some are fortunate enough to be receiving a year-end bonus.

But bonuses are often spent before they are received as consumers anticipate payment. This year may be a good opportunity to practice bonus restraint.

“Since this is the season of giving, your first temptation will undoubtedly be to spoil yourself, particularly when you have worked hard during the year. But it may pay you better to use your bonus wisely and reduce as much of your debt as possible,” says Ralph Mupita, Managing Director of Retail Affluent at Old Mutual South Africa and Interim Strategy Director at Old Mutual Emerging Markets.

The Old Mutual Savings Monitor shows that despite the easing of the recession, 80% of households surveyed are saving the same or less than they were last year. South Africans are not saving more because of too much mid to long term debt (bond and car repayments). On the positive side, consumers are servicing their debt.

Debt is the main obstacle to financial security. It is so easy to be caught up in a spiral of debt. You incur debt, clear it with your annual bonus, and then promptly spiral into debt again. Mupita points out that people who plan ahead, even if they have debt, are managing not only to service debt, but also to get out of the debt trap and save.

Apart from planning, responsible money management requires a change of habits. It is best to use cash for purchases at every opportunity.

Mupita advises that you start by paying off the most expensive debts that charge the highest interest rates. Consider keeping part of your bonus aside for the holiday period, though, as this is generally an expensive time of the year. By using some of your extra cash for festive entertainment, you might avoid going into debt in the new year. And remember that early payment of salaries in December leaves a long dry January when school fees are due!

Once you have cleared your debts and are working on a cash basis, you can start thinking about investing your money for important goals, making your money work for you instead of working for your creditors.

The greatest gift you can give yourself is to take some of your extra money and pay yourself first by investing it into your financial health.

“South Africans should not lose sight of vital aspects such as healthcare needs and risk protection as part of their overall financial plans - the holiday season will undoubtedly see many of us taking to the roads, and it’s a sad fact of life that accidents increase over this period. Your financial adviser can help you to structure a plan to create a healthy financial portfolio whilst still living within your means,” concludes Mupita.