The new year typically starts with a barrage of advice pieces on what to do with your finances in the year ahead. Financial resolutions to make this year! or Five steps to get on top of your finances! these headings proclaim, but what these well-intentioned articles don’t take into account is that you’ve likely already indulged in a couple of ill-advised financial decisions over the festive season. You need to course correct. And fast.
Corne Welman, Franchise Principal and Financial Adviser at Consult by Momentum, says: “Added to this is that most of us feel a bit depressed after the holidays. When the new year starts, we typically head to the malls to do the back-to-school shopping, using the limited funds available in our already overdrawn accounts.
“But, as all retailers know, the average consumer is not immune to the temptations lining their shelves and the minute we see a potential pick-me-up to our post-holiday blues, all good intentions are out of the window and we often find ourselves in a worse financial situation than before!”
So instead of telling consumers what to do with their money, Corne rather shares a few things that they should not be doing in 2023.
Do not withdraw money from your investments to pay off a holiday indulgence
Corne says that many people feel a sense of guilt or despair about their festive splurges; especially when come the new year, they are suddenly faced with school fees, work-related expenses and a whole lot of overdrawn accounts.
What to do? The solution may be to just cash in some of our savings or investments to pay off our debt and just move on, right? Wrong.
“This may result in your incurring more risk with this disinvestment. Factors such as market timing, currency and systematic risk may end up eroding all of your hard-saved money and set you back more than a few months of saving, she advises.
“Instead, rather speak to your financial adviser and work out a plan to address your debt in a way that doesn’t affect your savings or jeopardise your retirement plans.”
Do not ignore the power of your retirement savings to reduce tax
Do not fall into the trap of skipping one or more of your retirement annuity premiums, advises Corne.
“You may end up negating your retirement tax-savings benefits, which offer an easy way of bolstering your disposable income for the year ahead.”
Rather, invest this money wisely and where it belongs – towards your retirement – and take advantage of the tax breaks offered to incentivise these savings, she says.
Do not put off reviewing your risk portfolio
If there is one thing the last three years have taught us is that our future is not always in our own hands. Risk products like life insurance, income protection and disability cover may feel like grudge purchases, but are critical to safeguarding the financial well-being of ourselves and our families, says Corne.
“At the start of the year, we may have all the best intentions of reviewing our portfolio with our financial adviser, but if we don’t prioritise this we may blink to find that half a year has passed and we have left this important task too late.”
Corne says that our risk profile changes all the time, along with our lifestyle and circumstances. “It is vital that we review these changes and how they impact our cover timeously, to ensure that we retain an adequate level of protection, she says.
“And do not even think about reducing your risk cover without professional advice, she warns. There are often better ways of freeing up funds that don’t potentially compromise the financial well-being of ourselves and our families.”
Do not tap into your rainy day fund to pay for fair-weather luxuries
Corne says that after the pandemic, many find themselves with a distinct urge to book a fancy holiday or make a lavish purchase to compensate for the hardship of the last few years. She suggests that instead, we should rather look to what the pandemic has taught us: we don’t need tons of material goods; all that matters is our health and that of those we love.
And also, sometimes staying at home is not such a bad thing.
“We’ve seen how fast things can change and have realised that the future is unpredictable. Therefore, we should build an emergency fund as we never know what may be around the corner. Let’s learn from the past and not repeat our mistakes,” she says.