Spend wisely this Christmas



By Nkau Matete

Christmas time always brings hype and irrational expenditure. For the lucky few who work in the private sectors, bonuses are paid at this time of the year. The golden rule in financial management is to always leave something for yourself. What do we mean by this? We do not mean spent on you first, it means put away something in savings.

It is always wise to save before you spend. Whether it is 10 percent or 20 percent of the bonus, always start by saving. Another source of income that happens in December is stokvel proceeds sharing. Stokvel or grocery schemes are very popular especially among ladies.

Though lately there are many men who join these grocery schemes. I have always struggled to see the economic rational of these schemes. The interest is high, usually 20 percent a month and as a member you are forced to borrow. The first advise you will get from any financial planner or advisor is to avoid debt. So any scheme that encourages one to get into debt is a no go for me. Let me quickly withdraw from expressing my negative personal views on these schemes because they are popular and membership is increasing from year to year, taking this trend alone, there must be some benefit to the members who join them.

Going back to spending wisely, once you have put away and saved for the future, one must start by looking at servicing debt. Debt can be very expensive. Start with the most expensive debt like Overdraft and Credit card debt. Overdraft interest charges range between 3 percent above prime rate to as high as seven percent. Once you have cleared this unwanted and most expensive form of debt, look at the long term debt like mortgage if you have one. Interest paid on mortgage during the life of the loan can be as high as 60 percent of the total loan. There is magic in accelerating payments and finishing servicing the loan early. Once a year   lump sums paid or marginally paying more that stipulated monthly repayment amount can safe one up to 20 percent in total borrowing.

Use your bonus to pay next year school fees. Most schools will give a discount if you pay before the beginning of next year. Please do not spend your entire bonus on clothing! Buy one or two investment items. A refrigerator or a new kitchen is good household investment expenditure. If you put in a new kitchen for your wife, you have not only made an investment into your marriage, but you have a good down payment for leave to go play golf with friends. Remember if you fitted a kitchen using debt the price goes up by 20 percent to 30 percent depending on the length of time you will take to service the loan.

Christmas time is also rare opportunity to spend quality time with family. Sharing love and gifts is priceless at this time of the year. Go on, buy your daughter or son that an Ipad Air with your bonus pay-out. But most importantly, do not forget that January is the longest month because salaries are paid early December. Leave enough to carry you through to the next payday without going into overdraft.

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