Here are three strategies to ensure that your penny-pinching starts to the year are over. Independent Newspapers.
By Munya Shumba
Let’s start by recalling what Jan-U-Worry is. In most parts of the world, typically in December, one of two things tends to happen: many employees are paid earlier than usual during this period; and for employees fortunate enough to have the opportunity, most 13th cheques are paid out in December as well.
So, in the middle of December, most employed South Africans have more money than usual in their bank accounts. They’ve just been paid at the end of November and halfway through the next month, they’ve received another pay cheque. What could go wrong?
But, come the middle of January, there’s this rampant disease of financial struggle where everybody is singing in unison as they claw their way to January’s pay day. How can there be such a 360 turnaround in such a short period of time?
The noodles diet
I recall my first experience as a victim of Jan-U-Worry in December 2008 when I was working part-time as a university student. We were paid early in December to help staff plan for Christmas. However, as a student with much free time on my hands, no lectures and no responsibilities, I spent that time and the “extra” money going out. I didn’t actually have any more cash than I would have had over a two-month period, but I wasn’t used to having all these extra funds all at once and, in my naivety, I started spending more than usual.
From exorbitant midweek lunches to spontaneous midnight parties at the most exclusive bars in Manchester I would have never thought twice to go. I didn’t question it, because well, it seemed every time I swiped my card, it worked, and I seemed to always maintain a healthy bank balance. This was the case until, well, it wasn’t.
After the rent debit order went off at the start of January, following a New Year’s Eve celebration to remember, reality hit very quickly when I checked my bank balance, and I stared down a long 31-day barrel to the next payday.
That January was so financially torturous. Even to this day, 15 years later, I remember the pain of taking noodles for packed lunches to school and work every day and watching enviously as my fellow students and co-workers carried on spending as usual at the canteens or ordering takeaways. In those moments, the frivolous midweek lunches at San Carlo (one of the swankiest restaurants in Manchester) and boozy evenings in the city centre in December didn’t seem worth it. As I searched high and low for bargain deals on bulk noodle purchases that month, I vowed never to be in that position again and would never be caught in the trappings of December by getting carried away with everyone else living in the moment.
That experience was my first insight to acknowledging that, as human beings, without a clear-cut plan on how to budget, when given the opportunity we will generally spend additional money we have, perhaps because we naively believe the party won’t end, or that we’re entitled to live it up a bit.
Secondly, when given the chance to “keep up with the Jones”, we will. And while I am not suggesting that you shouldn’t spoil yourself from time to time, you must also know when to walk away and, most importantly, know your limits in advance and accept them. It is ok to say no, to decline invitations to never-ending get-togethers during the festive season.
Overcoming financial struggles
If you’re a perpetual victim of Jan-U-Worry, here are three strategies to ensure that your penny-pinching starts to the year are over:
1. Stop before you start: before you get carried away with your December splurge, make sure that you have a budget prepared, know how much you have allocated to spend on your indulgences and stick to it. You need to check yourself before undertaking any unnecessary spending. Always remember, that when it comes to having a good time in December, there’s strength in numbers. But it’s a very lonely place at the bottom when the music stops playing.
2. Earn the right to have a good time: it’s quite OK to have some fun, but you must have earned it first. This is the basic principle of delayed gratification and planning.
I recall sitting down with a graduate many years ago when she first started working and had an opportunity to go to Thailand with her new work colleagues on a short girl’s holiday. Although she hadn’t been saving, she had a decent income, with a generous credit card limit, and felt she could pay for the trip using debt, then pay off the loan gradually over the next 12 months.
As a financial advisor, I always look at the risks involved and, given the fact that she had no savings to fall back on, maxing her credit card was a bad idea, this was going to set the wrong habits with her finances right at the start of her career and I was against it. In the end, she didn’t go, and we started a three-year goal for a holiday fund, a separate five-year goal for her house fund, and a rainy-day fund in the event that anything ever happened at work. Over a six-year period, between all three accounts, they swelled to over R600,000.
The holiday account was used to fund two memorable overseas trips to Egypt and Thailand with photos that are plastered over her Instagram account. The house fund paid for the deposit, transfers, registration costs and furniture for her brand-new apartment and her rainy-day fund now has in excess of six-months’ worth of income in the event that things do not work out.
3. Make a modest start: If you’re a poor saver, and have tried and failed before to save, then we can use psychology to help turn this around. The key is to start with what may even be perceived as embarrassingly small amounts: savings and investment accounts can start from as low as R50 a month. If you want to start to become a better saver, but have struggled in the past, then pick one thing you’d like your savings to pay for in January 2025. It could be your rent, car payment, groceries, medical aid etc. Assuming one of these things costs R4,000, you’d effectively have to save around R315 a month and earn an interest rate of about 8% to have the funds to bail you out come next year.
This may seem like a futile exercise. However, people who are poor savers need to understand the benefit of delayed gratification, even at a micro level. The financial stress that no longer exists come the turn of the year, because you have the funds available to pay for your car payments because you saved throughout the year re-enforces your willingness to do it again. The fact that you’re no longer hounded by your car finance company’s call centre over missing premiums gives you peace of mind, which came from sacrifice and preparation. It becomes a stimulus to want to apply this to a second area because you now know that saving works.
The “pain” or “inconvenience” of saving isn’t that anymore because it’s attached to a sense of financial freedom which will come later. This is how, over time, clients go from being good savers to great savers. When they experience the high of reaching an achievement after saving for assets such as a house, a car, or an experience such as a holiday, they want to enjoy these things again and again, in many other areas of their finances. Just like exercise, once the results start to show, the so called “discomfort” of paying their premiums each month, becomes a healthy addiction where the consistency will similarly take your finances to exciting heights.
If you can start now with applying these three simple strategies to managing your finances, by the beginning of next year you will breeze through the traditionally tight month and Jan-U-Worry will become a thing of the past for you.
* Shumba is the financial advisor at Discovery Limited.
PERSONAL FINANCE