How best to budget during the festive season in South Africa

Despite the mid-December signalling a time of recovery and relaxation, it can also be a period of financial stress for some South African families, says Lynn Bolin, head of communications at M&G Investments.

The festive season has its own unique expenses, including buying presents for family members and thank-you gifts for schoolteachers and other caregivers, said M&G Investments.

“While your child is likely to have many suggestions on how to spend your hard-earned cash this summer holiday, it’s important that you stand your ground and do not allow yourself to be guilted into overspending.”

M&G Investments provides the following steps to avoid overspending during the school holidays and lighten your financial burden:

Focus on meaningful activities

A good approach to sticking to a budget is by planning activities that are more valuable in terms of memorable or emotional value than the cost of the outing.

“For example, this could be visiting friends and family at their homes or having a picnic out in nature instead of going to a fancy restaurant,” said M&G Investments.

The group said that supporting local entrepreneurs and small businesses at Christmas markets could be more cost-effective – and entertaining – than doing your gift shopping at large chain stores, with the added benefit of helping your community directly.

Be selective

Not every activity you do over the festive season has to be worth cold hard cash. For people with kids, you can try and allocate a daily or weekly activity or gift budget at the beginning of the holiday, then work together to devise a calendar that spaces out your paid activities over an agreed timeframe.

“Fill in the gaps with free, fun pursuits like camping in the backyard or going to the beach or the forest for a family day,” said M&G Investments.

Gift investing

One step up from creating a holiday budget and calendar is to use the holiday time to broach the idea of investing. For example, you may wish to open a unit trust on behalf of your child as a present, one that is aimed at a big future holiday, such as a trip to the Kruger National Park, which usually requires booking at least one year in advance.

In doing this, you can start to teach them investment concepts such as compound interest, as well as risks versus reward and investing for the long-term (especially as it could take some time before they see any real payoffs due to the small amounts they’ll likely to be putting in).

Keep your child in the loop so that they see both the downs and ups of the market and learn that this is usual. At the same time, they can enjoy the anticipation of a special activity or reward while putting money aside and learning the art of patience – one of the keys to successful investing.

Another option to consider could be opening a Tax-Free unit trust with your child in their name as a tax-effective way to save for the longer term. If you don’t already have one for yourself, you’re not taking full advantage of the things the South African government has put in place to make investing more rewarding for everyone.

Compounding tax-free returns over the years can significantly impact your investment values versus a “standard” unit trust.

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