Every year, many of us learn the hard way that year-end bonuses don’t stretch as far as we imagine. Before we know it, January arrives, and we face an uncomfortable reality – not only is the bonus gone, but, worse, we realise we’ve taken on debt to fund the holiday spending spree.
A 2023 National Debt Review survey found that 40% of consumers used credit cards to fund their Christmas expenses. DebtBusters’ third-quarter 2024 Debt Index, a quarterly evaluation of debt counselling applications, released this week, shows that over the past eight years, income growth has not kept up with significant cost increases, and consumers are using short-term unsecured credit and personal loans to make up the shortfall. As a result, consumers need to allocate two-thirds of their take-home pay for debt repayments.
In other words, consumers can ill afford to add to or create new debt. However, it is easy to get swept up in spending during the festive season, with all the Christmas lights and holiday cheer urging us on. But there’s also a psychological factor at play that makes it even harder to rein in our expenses.
According to Knowledge at Wharton and Frontiers, year-end bonuses can create a psychological effect that leads people to overspend. When individuals receive an unexpected bonus or lump sum, they often view it as “extra” or “found” money, triggering a bias known as the “windfall effect”. This effect can make them more inclined to splurge rather than allocate the funds wisely, because they mentally separate it from their regular income.
Research shows that receiving immediate rewards, such as bonuses, can boost intrinsic motivation and trigger feelings of temporary wealth. This perception can cause people to overestimate their purchasing power and spend beyond their financial capacity, assuming their budget can stretch further than it realistically can.
Understanding these behavioural tendencies can help individuals to plan more strategically. Rather than seeing a bonus as disposable, it is beneficial to integrate it into financial planning, such as debt repayment, savings, or investments, to avoid post-holiday financial stress.
And when it comes to investments, investing in further education is often seen as one of the best ways to increase earning potential and improve career prospects. Research shows that higher levels of education correlate with better employment opportunities and higher salaries. For instance, a study by Haroon Bhorat (2016) found that higher education significantly boosts employment and earnings in South Africa, particularly in sectors requiring skilled labour.
Additionally, although unemployment rates are high, graduates still tend to fare better than those without higher education. As of the first quarter of 2023, graduates face an unemployment rate of 10.6%, which is significantly better than the overall unemployment rate of 32.9%.
Read: Education is key to improving your job prospects amid rising unemployment
Building a better future starts with the financial choices we make today. To avoid financial strain this festive season, commit to creating a realistic budget and stick to it.
Spend differently this festive season
DebtBusters provides this advice for creating a holiday budget:
Assess your current income streams
Calculate the amount of money you have coming in after taxes and deductions. Then calculate your recurring monthly expenses. Find out how much you have left after subtracting the expenses from the income. Thereafter, you will know how much money you have to work with for the holiday period. Remember, many of us get paid early in December – meaning this money has to stretch further than it usually does.
Make your budget realistic and affordable
It is exciting to plan getaways, day trips, activities, and gifts for friends and family. However, you should remember that all these things add up and become very expensive. Put a limit on how much you can spend without dipping into your savings or taking out additional credit or accounts. In fact, you should plan to spend only a portion of your leftover income after expenses. This is to ensure that you have money available should something urgent and unexpected come up.
Analyse your spending from last year
A good way to plan ahead is to have a look over your spending from last year’s holiday season and decide what expenses were really necessary, and what you could cut back on. Then make a list of the things that are necessary and are within your limit.
Find the most affordable shops and stick to these
It’s inevitable that you will need to spend some money, but there are ways you can save while shopping. Do a shop comparison to see where you can get the items or services for the best price. This way you pay the least possible, for what you need. You can also use loyalty cards to make extra savings and get perks.
Decide what your holiday priorities are
Group your festive season expenses, such as gifts, food, travel, special events, and everything big and small in between. Then allocate part of your income to each group, considering your monthly expenses, and ensuring that you have some money left over. Track your spending as you go to ensure you’re staying on track.
Get creative when it comes to presents, food, and décor
Your innovative ideas could save you a lot of money. You can have home-made gifts and décor and find cheaper ways to entertain guests, such as having a movie night or playing board games.
How to save money on gifts and decorations
- Consider thrift shopping.
- Use recycled goods to make something special and unique for the ones you love.
- Choose digital gifts. You could create a digital photo album or make a music mix for free.
- Skip the cheesy, store-bought gift cards and make them online or by hand.
- Limit your gifts to certain people.
- Make a family agreement to do a Secret Santa or a gift exchange so that everyone only needs to buy one gift.
How to save money on holiday season meals and hosting
- Everyone can contribute to the meal by bringing one item. That way the cost is split, rather than you having to pay for everything.
- Avoid buying take-aways.
- Plan how much food is needed, so that you don’t end up with a lot of waste.
- Don’t choose recipes with ingredients you’re never going to use again.
- Stay in and have quality time rather than going out and spending on activities.
You should also not limit yourself excessively, because that will lead to frustration. Think about dieting. When you think about never eating chocolate again, all you want to do is eat chocolate. But if you allow for a small amount of chocolate, it’s much easier to stick to the plan. The same can apply with your budget and spending. Find a good balance and ensure you have breathing room with the money you have available to you.
Moonstone Business School of Excellence: enrolments for 2025
MBSE offers the following accredited qualifications:
- Postgraduate Diploma in Financial Planning (NQF 8)
- Advanced Certificate in Financial Planning (NQF 6)
- Occupational Certificate: Compliance Officer (NQF 6)
- Higher Certificate in Wealth Management (NQF 5)
- Higher Certificate in Short-term Insurance (NQF 5)
Applications for the first semester close on 27 January.
Apply today at www.mbse.ac.za.
For more information, contact us at help@mbse.ac.za.
