Money can’t buy happiness, but can buy peace of mind

Marwan Abrahams

After the free-spending festive season, many people will find they have month left over at the end of their money, leading to stress which in turn leads to unhappiness. But, writes Marwan Abrahams, there’s hope.

Having money is a lot like being in a relationship. When things go well, every day seems filled with happiness. When it all goes wrong, life can get pretty miserable.

Your relationship with your money affects those around you too, in either a good or a bad way. If your money is a source of stress, you probably pass that stress on to your loved ones.

In the same way, a healthy relationship with your money will contribute to healthy relationships with those you care about. It can give access to a good education, for example, and bring peace of mind so that you’ll be able to bounce back after life’s inevitable setbacks.

So if things get tense when it’s time to open your bank statements, it could mean that you’ve fallen into a bad relationship with your money.

You’re not the only one. Money stresses plenty of people. There’s even an illness, Money Sickness Syndrome (MSS), caused by financial worries and displaying all the symptoms of anxiety and depression. So in one sense, money can buy you happiness; or at least, it can help you avoid the special kind of misery that comes with financial hardship.

That’s worth remembering during the festive season, because it’s followed all too soon by January, a tough time for many people. Not surprisingly, divorce rates climb in January, and there’s some evidence that other kinds of relationships are also more likely to have a rocky patch early in the new year.

It’s a long month and payday seems to take ages to arrive. But it can also be an opportunity to examine and reinvent your relationship with your money - and even to draw up some New Year’s resolutions around it.

If it seems like a daunting task, you’re not alone in feeling that it’s hard to achieve. The most recent Old Mutual Savings and Investment Monitor shows that no fewer than 80% of working South Africans want advice on how to save.

It’s not hard to see why. Many households just see no way to save a cent when struggling to cover necessities like rent, electricity and water, food and school fees.

Many South Africans not only struggle with the cost of living, but are also trapped in debt. The National Credit Regulator reports there are about 19 million credit-active South Africans, around 60 million credit cards, and that nearly half of credit-active South Africans are credit-impaired – at least three months behind on a payment.

One recent example of the impact of this credit crisis is the spate of resignations among teachers in KwaZulu-Natal. Many do so to cash in their pensions to pay off debts. Unfortunately it’s a short-term solution that will have a negative longer-term impact on them and their families, as well as their communities.

It points to the tough times facing many South Africans, but also to the need for changing the way we look at saving.

Essentially, it starts with treating saving as an expense – put savings away before you spend your money, rather than saving whatever’s left over, because as we know, it’s very hard to have money left over at the end of the month. Many of us tend to have month left over at the end of the money.

But it can be done. The Old Mutual Savings and Investment Monitor shows that more South Africans are biting the bullet financially. They’re making pragmatic decisions about cutting costs and getting rid of debt.

The survey has found that South Africans are also more likely to save for short-term commitments which are closer on the horizon, such as their children’s education, than retirement funding needs.

The risk posed by festive season bonuses is that, having cleared your debt, you will be tempted to get back into debt. Rather look at your debts and pay off the most expensive ones first – debt such as credit cards and shop cards that charge the highest interest rates. Using some of your bonus or 13th cheque to do this can seem pretty joyless, but it’ll save you money.

Then, once you’ve cleared your debts and are using cash instead of credit to make purchases, you can start thinking about investing your money for important goals, making your money work for you, instead of working for your creditors. It is better to save something than nothing at all and even if you start small, you can reap the effects of compound interest in the long run. Compound interest is where you earn interest on the interest already earned with an escalating snowball effect on your savings.

During the festive season, some useful tips may help you on your way to financial freedom:

· Ensure you set money aside for the well-deserved break

· Plan each year’s annual holiday well in advance and start saving towards that from 31 January for the next holiday

· Using an overdraft to fund a holiday not only defeats the object, but the interest charged on the overdraft could easily double the cost of the holiday over time, especially if you allow the debt to compound over a long period of time

· Before departing on holiday, ensure you fully understand your financial commitments the day you return from holiday. These could include items such as:

· 1. Back-to-school expenses

2. Is your child going to university and have all expenses been covered?

3. Depending on your tax position, prepare for the payment of income tax

4. Set aside money for the possibility of vehicle repairs.

· Make sure all is in place:

1. Life and medical assurance

2. Household and motor vehicle insurance

3. Update and review your financial plan with your adviser during the year to ensure that you’re still on track towards your financial freedom.

Managing your finances better is a great New Year’s resolution. It will help you to build a better relationship with your money, and do great things with it, and that could benefit your other relationships.

Marwan Abrahams is Executive General Manager: Customer and Intermediary Solutions at Old Mutual.