Financial discipline for the festive season

Money Matters

A monthly newsletter focusing on personal finances - and how to continually improve these - through dealing with issues that the average salary owner has full control over.



Financial discipline for the festive season
Date: 01 Dec 2008

Financial discipline for the festive season


Christmas is upon us, and we'd like to give you two ways to survive this season of financial madness. It might be tradition to start forking out money from the 1st of December right up till New Year and arrive in January with a hangover on your credit card, but perhaps this should be the year that we all start a brand new tradition called "Financial discipline for the festive season".

The words "discipline" and "festive" don't really seem like typical partners but the truth is, they should be, if we are to stay on track with our financial goals, and not spend most of 2009 paying off our December excesses. It's a two-step process:

Step One: Get real about credit

Last year the National Credit Regulator conducted some research and the following were key findings on the growth in credit extension:

  • Household credit (by banks) increased by R391 billion over 4 years - that is 135% growth.
  • The bulk of this growth was mortgages, which grew by R270 billion over the period. Credit cards also grew considerably and were an important contributor to debt stress.
  • Consumer credit extension grew faster than household consumption, GDP or growth in formal employment.


These are remarkably scary statistics. The National Credit Act that we discussed in Money Matters in August 2007 is there for our protection, to keep us from getting into more debt than we can manage. There have been reports of people supplying inaccurate information and falsifying their payslips so as to "qualify" for more credit than they can really afford.

This is why saving is so incredibly important, so that you never have to be so desperate that you'll go to any lengths to get a loan - one that you can't afford to pay off anyway.



Credit cards

Getting real about credit also involves having a responsible relationship with your credit card. Never before in the history of humankind has such a tiny piece of plastic had so much power (think about it - a credit card is only 8 by 5 centimetres). The era of instant gratification that credit cards brought us has caused more devastation to personal finances than the worst stock market crash.

Do you even know what the interest rate is on your debt balance? Check your next credit card statement and you'll see that the interest rate is a whopping 27% - which means that if you don't settle your full debt balance every month on time, your purchases will attract 27% interest per month. That's a HUGE amount!

Things got so bad recently with the amounts that people were spending on their cards, and not paying off, that banks started deducting the amounts owed off defaulter's bank accounts. This was a desperate measure, and is actually illegal (thank goodness, because how do you live once your entire salary has gone to pay off your credit card?). But it proves a point - credit cards can cause enormous problems if not managed properly. If you know you are not responsible with a credit card, this next paragraph is for you:

Who is in charge - you, or your credit card? Who is bigger - you, or your credit card? Do you really want to be subservient to a piece of plastic for the rest of your life? Credit cards became popular because we no longer had to carry large wads of cash in our wallets. But ding dong merrily on high, along came the debit card - wonder of wonders - which will only work if you actually have money in your account. So leave your credit card at home, or cut it up, and use cash or your debit card this season (and for the rest of your life).


Step 2: Lose the Stuff

If you are fortunate enough to receive a Christmas bonus, try this one "do" and one "don't":

  • Do use it to pay off any outstanding short-term debt (e.g. credit card, overdraft, store charge cards). If you don't have any short-term debt, put your bonus into your long-term debt (your home loan).
  • Don't use it to buy more stuff. You do not need a new camera. The one you have is fine. If your television still flickers into life when you push the 'on' button, you do not need a new one. Your furniture might look a bit old, but unless it collapses when you sit on it, it does not need to be replaced.


Make your kids aware of stuff, and have a family clear-out. Still not using the smoothie-maker you bought on special three years ago? Sell it and put the cash into your savings account. Get rid of stuff you don't need, and don't get more stuff in its place.

In his book How to be Free Tom Hodgkinson writes: "Today, we are imprisoned by our desires, shackled by shopping. The will to shop is a corroding and enfeebling force. We desire a new pair of shoes, a new car, a new house, a new sofa, a new TV. We need money to buy these things, so we bind ourselves to an employer in order to get the money, or we get into debt by borrowing the money from one of the many institutional usurers in the marketplace. And this we call freedom. This, simply put, is the problem with desire. Our natural desire to live well and enjoy life is co-opted by the consumer system and turned into something materially based and enslaving."

What do you want the most: Stuff? Or financial freedom?

From the team at Sanlam Money Matters, our very best wishes to all our readers for a happy and truly prosperous New Year.