How to survive the holiday season spend

By: Debbie Netto Jonker of Netto Invest

It is the festive season and hopefully you have a little extra cash through diligent savings, or have earned a bonus for all your hard work, the temptations to spend are plenty, and what took you at least 12 months to earn or save may be used up in no time at all if you are not careful. Do you know how much the festive season is really going to cost you?

Retailers put a lot of effort into getting you to part with your hard earned savings. It is very difficult to avoid getting caught up in the shopping catalogues, and the centres are beautifully decorated with every corner inviting you to spend. If you get caught up in the hype you may soon lose focus on what you intended to purchase, and walk away with less cash at the end of the month than you intended to. You need to set a target spend and savings for the month and stick to it, the rewards will be far greater than the additional spend can ever return you, the challenge is how to stick to it. Start by throwing away the catalogues, limit your time in the shopping centres, and invest what you wanted to save now.

The benefit of an investment over time is the eighth wonder of the World. With compound Interest, your small saving now can grow, and the returns you earn will earn their own returns later and so it continues.

As an example R20 000 in 2003 is the equivalent of R35 480 today, using an annual inflation (CPI) rate of 5.9% per annum, in theory, this means you need R35 480 today, to purchase what R20 000 would have purchased in 2003. If you invested the R20 000 in 2003 into a balanced strategy, with an annualised return of 5% above inflation, then your R20 000 would be worth R56 279 today. This is illustrated in the graph below.

Using an investment vehicle like a retirement annuity or pension fund, may also further reduce your tax liability over and above the investment growth, your Financial Planner will be able to assist you on whether this is an appropriate option for you. The risk of over spending this festive season, is not only the shortfall in your savings now, and perhaps the additional funds into a sars bank account, but more costly in the potential investment growth you may miss out on, which can never be made up as we cannot go back in time.

So, to enjoy the festivities, stick to your budget, invest now, and reap the additional rewards later.

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