By Rita Cool, Certified Financial Planner at Alexander Forbes
November’s arrival ushers in holiday shopping and with Black Friday specials already displayed, overspending to get the ‘picture perfect’ family life we see in advertising can be the cause of unnecessary financial and emotional stress. There are a number of ways to avoid falling into a debt trap by being mindful of sale scams, doing comparisons and thinking about investing rather than spending this holiday season.
One pitfall to avoid is the ‘closing down sale’ sign which we automatically assume means the products will sell for next to nothing however, be aware that this may just be a marketing gimmick and often times after a few weeks when you return to the store the sign might still be up and the shop still there. Evaluate whether the deal you are getting is really a discount as prices could previously have been inflated and then deflated to reflect a discounted product, similarly a different colour sticker might be added to create the illusion of a discounted price. Make comparisons between different makes and models as retailers might sell older models at a discounted price when a new version is about to be launched – however if you buy a better quality product which may cost more it might last longer.
Looking at the unit price could also save you, as buying in bulk may not always mean a product is cheaper, also be mindful that when a price ends in a 9 it makes the item seem less expensive however a price of R5 999 is actually only R1 away from being R6000 – this is another tactic commonly used to persuade us into buying unnecessarily. Things such as membership schemes are also rife at this time of year and you need to think of the long term costs and whether signing up would benefit you or not. Looking up and down the shelves is also another great trick in ensuring you get the most bang for your buck as items that are less expensive are normally placed either higher or lower than your eye-level and shopping with a list is another great way to cut your expenses dramatically.
As an alternative to spending money this Black Friday, rather take the money you were going to use on buying items that you don’t need and investing it or pay off your existing debt instead of creating more. A budget is a great way to see how much extra money you can give to paying off your debt quicker and if you were planning on buying something big on credit this Black Friday, your budget will show you if you have some extra money to pay it back faster.
If your debt is under control, use any extra money to save for an emergency fund or save any extras in your access bond so you can take money out of the bond in case you really need something – the great thing about this is that while in the bond it reduces your outstanding debt. A great investment can really pay off in the long run and by investing R10 000 at 10% annual interest you could receive much more back for example:
|Year||Investment Value||Total Interest|
|1||R 11 000||R 1 000|
|5||R 16 015||R 6 105|
|10||R 25 937||R 15 937|
|15||R 41 772||R 31 772|
|20||R 67 275||R 57 275|
|40||R452 592||R442 592|
Shopping events like Black Friday make you feel like you want to be part of the group. It makes use of the fear of missing out on a bargain that your friend manages to get. So before you know it you are in the shops on one of the busiest days of the shopping year just to be able to brag about the deal that you got. You might have landed a great deal, but if you didn’t need it to start off with then it’s not really a deal and you have spent money you didn’t need to spend.
So this year don’t follow the group on Black Friday and spend unnecessarily but rather invest in yourself and your financial future.