You might feel like 2019 was a tough year for you financially and now as the festive season approaches, you’re set to spend more. Year-end financial regret is real and according to American news site Investor’s Business Daily mistakes generally stem from a tendency to live day-to- day financially instead of thinking long-term.
Charles Mpofu, Consumer Finance Education Manager at Nedbank, says failure to save for emergencies, taking out unplanned personal loans and not budgeting for the festive season are some of the financial pitfalls people should avoid throughout the year.
“It’s important to save up for unforeseen circumstances so you are not caught off-guard. People often take out a personal loan or approach a loan shark, which should be avoided,” he says.
Recent data from the Old Mutual Savings and Investment Monitor based on one thousand South African households living in major metropolitan areas revealed that only 30% of respondents are saving for emergencies. Having an emergency fund can help you stay out debt when you are faced with job loss, need money for car maintenance or are dealing with urgent family matters.
Charles says another mistake people make is taking out too much credit with the ambition to pay it off at the end of the year.
“People often plan to pay off credit in December when they receive their bonus or 13th cheque, but they don’t know how much their bonus will be and if it falls short of their expectations it can be disappointing.
Also, a 13th cheque means you’re getting double your salary but remember that the normal salary is still committed to monthly living expenses. Rather save your bonus and any extra income.”
According to finance news site MoneyWeb, in 2019 consumer debt in SA totalled nearly R1.7 trillion,of which over R200 billion is unsecured short-term debt such as credit cards, store accounts and personal loans. And the demand for credit continues to increase despite 40% of borrowers defaulting on repayments.
The South African Reserve Bank says South Africans are taking on too much debt, with 75% of household income being spent on debt. General loans and advances from financial institutions continue to increase yearly, with South Africans taking out loans to supplement their income.
Now that the festive season is here, Charles advises against overspending.
“The festive season is a very short period in the year but people can spend more than double their monthly income,” he says.
He warns against getting caught up in festive season sales such as Black Friday.
“We’re at a time of the year when people end up spending money on what they want and not what they need. Some people have failed to budget for the festive season, and planning for the following year’s festive season should begin early.
He advises to take note of everything you spend so that you are not taken by surprise in January, and you can plan better for the following year.