It is the end of the year — a time for fun and festivities. For Tumi, it is also the time when she receives her annual bonus, which will be a 13th cheque of R11 200 after tax. It is wonderful to receive the extra cash and Tumi is already planning all the things she can spend it on. But by making sensible decisions Tumi can make her bonus go even further.
In the past, Tumi would have spent her bonus immediately on spoiling herself and her family. She can still treat herself, but she has to have an action plan to make the most of this extra money.
Tumi must consider how she can stay debt-free over the festive season. She must decide how much she will spend on herself and how much she will save. As she struggles with debt and redeeming it, this could take a huge strain off her for the rest of her life.
The best option for Tumi, as for anyone with a bond, credit-card debt or overdraft, is first to pay off or reduce her debt. Tumi’s first step in her action plan is to redeem her debt. Her other needs are to save some money, to use some of it to buy Christmas presents and to put a specific amount aside for a special treat for her and her husband. It is important that she keeps a record of how she uses her bonus to ensure that she reaches her financial goals.
Tumi should choose to redeem her debt with the highest interest burden first, which is her credit card, on which she owes R5 000. If she gets rid of this debt, she won’t struggle with credit-card debt next year. The good news is also that, although she uses R5 000 of her bonus, in the future she will have R500 extra each month to spoil herself and to add to her nest egg.
After Tumi has paid off the R5 000, she still has R6 200 of her bonus left. Usually, Tumi spends about R1 500 on Christmas gifts, but this year she also wants to buy something special for her daughter’s first Christmas. She has her eye on a playhouse that costs R1 500 and therefore plans to spend R3 000 in total on gifts. If she spends a little bit less on presents and rather saves the extra cash, it could make a big difference to her financial situation and help her to create wealth in the long run.
For example, she can shop around for a cheaper playhouse if she cuts her budget to R2 000. She could then save the extra R1 000 towards a really special holiday for her family. If she invests R1 000 each year for the next 10 years, she will save R14 784 for this holiday. This amount is calculated at a conservative interest rate of 7% and could be much higher if Tumi invests it wisely.
Tumi also thinks it will be a great idea to spoil her husband at a fancy hotel for a weekend, but this will amount to R3 000. The reality is that this weekend will effectively cost Tumi R11 609 of lost savings had she invested it at a conservative interest rate of 7% for 20 years. To find a balance, Tumi should rather visit a day spa, which will cost R1 500 for both of them. Because she has done the right things, she can reward or spoil herself — she just doesn’t need to use her entire bonus to do so!
All in all, Tumi will spend R1 500 on treating herself and her husband, R2 000 on Christmas presents and R5 000 on debt redemption. She still has R2 700 of her bonus money left which she will put aside to save. She contributes R1 000 to her long-term savings fund and puts R1 700 into her holiday fund.
Celebrate without getting a year-long hangover
Tumi still wants to know how she and her friends can make their rands go further at this time of the year. Sanlam’s Yolanda Johnson has a few tips for saving money over the festive season:
Allow a certain amount for all expenses and do not exceed it.
Review your financial position and ask yourself whether you really can afford your holiday. If you have to run up debt, rather settle for a cheaper option. And if you have to stay at home, it need not be a boring holiday. Just visit the local tourism centre and you will discover that there are interesting places to visit right on your doorstep.
As far as the cost of travel (train, plane or bus) is concerned, do take the trouble to find out what the most competitive prices are. The internet provides access to the websites of most large transport companies, where you can compare prices and find out about special offers. The same applies to accommodation costs.
When you entertain, ask your guests to bring something with them, such as a salad or dessert.
Keep a record of your expenses and check this against your budget. It will also be a good guideline for planning future holidays.
And, to make the next holiday less stressful, start saving in good time. Decide to put a small amount aside every month.
If a large group is involved in the Christmas tree activity, draw names so that each one need buy a really nice gift for only one person.
Prepare for next year. Often sales are held after the Christmas season. Buy gifts now for those people who will be on your list again next year!