With Black Friday gone and Cyber Monday underway, the festive season roller coaster has begun. There’s no doubt that it’s been a tough year financially for most South Africans and you may have every intention of setting some firm resolutions come 2021. The reality, though, is that January is too late to start thinking about your financial resolutions for next year, and if you really want to make headway with your finances, now is the time to start getting serious.
When it comes to money and budgeting, December can be a black hole. By the time many of us return to work in January next year, it will be almost time for our debit orders to run and to pay our bills. Early intervention prior to year-end, coupled with some realistic objective-setting for 2021, can help strengthen your financial resolve over the festive season and keep your sights firmly on achieving a better financial outlook next year.
Understanding your relationship with money
Our relationship with money, whether we realise it or not, to a large extent drives our financial decision-making. Very often, poor financial decisions are a result of the fears, reservations, tension, anger or resentment that we feel in relation to money or to our financial situations, with these emotions often being particularly deep-seated. Coupled with this, we all have our own unique emotional and cognitive biases that can exacerbate our bad decision-making. Making better financial decisions starts with recognising the emotions that money evokes within us and identifying the triggers that set us on the path of self-destruction.
For instance, you may be fearful that you do not have enough money saved for the future and have a high propensity for risk-taking. This, coupled with your fear of missing out on an investment opportunity together with confirmation bias, may result in you investing in a fraudulent scheme. Your anxiety, “FOMO” and cognitive biases effectively work together to create a perfect storm which results in you losing the small amount you had managed to save. As a starting point, think about the last three major financial decisions you made and consider to what extent your emotions and biases influenced those decisions. Try and identify the emotions that drove you towards those decisions, critically analyse whether those decisions were good ones, and determine how you will approach your next financial decision differently.
Managing festive season expectations
You’ll be hard-pressed to find any South African who has not been financially impacted by the Covid-19 pandemic. Now is the time to take realistic stock of your festive season budget bearing in mind that any festive season spending over and above what you can realistically afford will undercut your 2021 resolutions. Put away any feelings of guilt and begin managing the expectations of family, friends and loved ones in advance when it comes to going away, purchasing gifts, entertainment, eating out and other luxuries. Large retailers are desperate to make up sales lost during the lockdown and are complicit in stirring up feelings of guilt and shame at not being able to afford the gifts we would all love to bestow on our loved ones. Be ruthless about what you can afford over the festive season and avoid succumbing to the pressure to overspend.
Avoid toxic money influences in your life
If there’s someone in your life that has a toxic influence on your finances, give careful thought to changing the nature of the relationship in 2021. Whether it’s a demanding ex-spouse who makes outrageous financial demands on you, a partner who pressures you into buying expensive gifts, or a friend who continually borrows money but is slow to pay the money back, identify those people who are a burden on your finances and who serve only to hold you back from achieving your goals.
Prioritise your retirement planning
Keep in mind that the end of February 2021 marks the end of the tax year and provides you with an opportunity to top up your retirement annuity up to the maximum tax-deductible amount of 27.5% per year (capped at R350 000 per year). If your earnings have been interrupted and/or erratic as a result of the pandemic, or if you are a commission earner, ask your accountant or tax practitioner to calculate how much you can pump into your retirement annuity before the tax year-end. Remember, whatever you invest in your RA is deductible and you can claim the tax back when you file your tax returns in July 2021. Give careful thought as to how you will re-employ your tax refund to boost your finances next year. Rather than thinking of your refund as a ‘windfall’, earmark it to serve a specific purpose such as boosting your emergency funding or paying off expensive debt.
Use your rewards
Loyalty programmes can be as frustrating as they are rewarding because most of us simply don’t have the time to figure out how to extract maximum benefit from them. If you’re engaged in a rewards programme, spend time this festive season working out how to maximise your points and rewards so that when January arrives you are ready to optimise the benefits. Many of the discounts and benefits of these programmes are significant if you are fully informed and engaged.
Unsubscribe from online retail communication
Make a concerted effort to unsubscribe from online retail push notifications that only serve to make spending top-of-mind. Traditional retailers and online shopping platforms flood our email boxes with discounts, sales and exclusive offerings that are at odds with developing a saving mentality and sticking to our saving plans. January sales and specials are bound to be very appealing to our sense but damaging to our finances, so turn-off the notifications or unsubscribe entirely. Remember, unless you are purchasing something you would otherwise still purchase, a 40% discount on something you do not need is not 40% saved, it is 60% spent.
Do an online credit check
Take time to do an online credit check to ensure that you proceed into 2021 with a solid credit record. While you may think you have a strong credit record, be certain that there is nothing untoward happening on your credit score. There have been many reported instances of identity theft where total strangers have racked up debt using someone else’s name and ID number. The process for appealing and proving your innocence can be time-consuming and laborious and can hinder your chances when applying for credit or financing if required.
Debt reduction strategy
If your debt is keeping you awake at night, find a debt reduction plan and make sure you implement it with effect from 1 January – or even before. There are fabulous debt reduction plans available online that are easy to navigate and are excellent at mapping out a strategy appropriate for your needs. From a psychological perspective, a debt reduction tool can provide powerful visualisation of your debt reducing and being eliminated over time.