Believe it or not December is a mere three months away and now is the best time to start thinking about your expenses over the festive season – and planning ahead for them!
Mellony Ramalho, African Bank’s Group Executive: Sales, Branch Network, says often we don’t plan properly for the festive season and end up overspending and having to take on unnecessary debt which can be crippling as the new year expenses start rolling in. “If you are planning on going to see family and friends during December and want to take gifts, groceries and money, then now is the time to start saving or possibly buying and putting items away. Remember that prices generally increase a month or so before December in anticipation of the festive season buying frenzy,” she says.
She suggests making a list of the items you will need to purchase and/or the amount of money that needs to be put aside and create a three-month plan. “There are various options in terms of purchasing items if you don’t have the cash on hand. Either you can save and buy in December knowing that while items may be slightly more expensive you won’t be paying interest on the items as would be the case if you have bought on credit. Alternatively, you could look into a lay-bye option, a hire-purchase option or buying on credit.”
A lay-bye agreement is a way of paying for goods over an agreed period of time. The retailer keeps the goods until the consumer has paid the full price. To lay-bye goods, the consumer pays a small deposit, and makes regular repayments after that until the total price is paid. “Several retailers offer this option. The positives about this option is that no interest is charged on the items and you can purchase now knowing the items will be available when you want them. On the downside, you do generally need to put down a deposit, which, if you don’t have the cash, will be a stumbling block,” explains Ramalho.
A hire purchase (or an installment plan) is an arrangement where a customer buys goods by paying an initial deposit (e.g. 40% of the total) and repays the other part of the cost over a period of time at an agreed upon interest rate. “This option is generally used for high-cost items such as electronic goods, furniture, and so on. The upside is you get to take the item home straight away. The downside is that you will be paying interest on the amount still owing and if you don’t pay an installment, the item will be repossessed.”
The third option is buying on credit. This is when the consumer borrows money from a financial institution to buy an item and pays back the total owing over a period of time at an agreed-upon interest rate. “What you need to remember is that credit isn’t free,” says Ramalho. “Initiating credit with any registered financial entity entails interest, service
and initiation fees added onto the required amount, which means you pay an increased price for the money that you borrowed when you finally pay that amount back.”
“When you apply for credit, it is important to ask for a quotation or a pre-agreement that shows the different fees and costs that will be added to your agreement. Secondly, you need to make sure you deal with a reputable company that is registered and abides by the National Credit Regulations, so you know that you’re being treated fairly.
Then you need to make sure you are fully aware of the total amount of money that you will end up paying. Some of the fees mentioned in your quotation or pre-agreement could be included in your regular instalment or it may show as an extra amount to be paid. Make sure that you know the difference,” she says. The positives with this option is that you get to take the items home straight away and you have access to money to make the purchase. “The downside is you end up paying more for the item than if you had paid cash for it.”
Whatever your plan is for the festive season expenses, the key is sticking to the plan. “Don’t be tempted to dip into your December savings or put your plans on hold to make other purchases. You will see the benefits when the festive season approaches and you are prepared. You can also start the new year off debt- and worry-free,” she concludes.