The summer holiday season is drawing closer, and the year-end countdown has begun. Heading straight to the mall to spend your extra pay cheque on gifts, accessories, clothes, appliances and furniture may seem like a good idea, but there are better ways to use it. With a little discipline and planning, you can enjoy your festive season without breaking your budget and go into 2019 with less debt.
Here are our top tips to help you live better by spending smarter this festive season:
Step 1: plan
Divide your bonus into 3 categories: debt, save and spend. Decide how much you want to allocate to each category, for example allocate 50% to paying off debt, 30% to a long-term savings goal and 20% to holiday expenses.
So, if your bonus is R10 000, you could put R5 000 towards your outstanding debts, save R3 000 and use the remaining R2 000 for gifts and holiday expenses.
Step 2: pay off debts
Using a sizeable portion of your bonus to pay off debts, especially those with a high interest rate, will save you money over the long term. Paying off clothing accounts, loans or credit card debt means you’re a step closer to starting off the new year debt-free. For example, if you owe R4 000 on your retail account and pay it off at an annual interest rate of 21%, you’ll pay R1 251.77 in interest (and a total of R5 251.77) over the course of a year. If you use your bonus to pay off the full R4 000, you’ll save R1 250.
If you have a home loan or car payment plan, it is also a good idea to put some money towards paying these off, as you will pay less interest over the long term.
Remember, using as much of your bonus as possible towards debt means you’ll have more available cash next year.
Step 3: save
Save a portion of your bonus in one of your 4 extra savings plans. You can give each plan a name according to what you’re saving for, for example a car deposit or holiday, or set money aside in case of an emergency.
Remember that if you are paid earlier in December, you’ll need to make your money stretch to the end of January, so budget accordingly.
Step 4: spend
You work hard, so spend some of your bonus on a reward, like a holiday, or buy an item that the whole family can enjoy, for example, a TV or a computer. Choose something worthwhile or that adds value to your life.
Other good options are to spend money on home improvements, like fixing the roof, painting walls or replacing kitchen surfaces, as this will add value to your property. Or cover upcoming expenses, such as your children’s school fees.