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The Salticrax dilemma

Nov 26 2012 11:49
Garth Theunissen
FOR those who don’t remember the iconic TV advertisement about the end of the month Salticrax, it shows a person who at the start of the month consumes his crackers with only the most luxurious toppings before progressing to more mundane fare by the middle of the month, until finally being forced to snack on plain crackers and then mere crumbs by month-end.

It’s a dilemma that’s sadly relevant to spendthrift South Africans. With that in mind, Fin24's sister publication Finweek has decided to put together a few practical tips to help readers manage their finances a little better ahead of the festive season, a time when even the most well-intentioned consumers can find their pay cheques severely stretched by the start of the new year.

The first step in basic budgeting is to arrive at a personal per diem, or daily allowance. Take your total after-tax salary (take home pay) and subtract all your fixed monthly expenses such as rent or mortgage payment, car repayment, cellphone bill, insurance premiums, groceries etc.

Be sure to include everything and over, rather than underestimate costs.

This will give you a monthly total for discretionary expenditure. Divide this amount by the number of days left until your next pay cheque, which will give you a daily allowance for expenditure on discretionary items.

The crucial element in this exercise is to ensure you don’t overspend your daily allowance. Even if you find yourself underspending for a few days, don’t compensate by overspending on subsequent days. Rather use the amounts from your daily allowance that you didn’t spend to contribute to your savings.

If you’re really disciplined, you can even try to take a spending break once a week, say every Wednesday, where you resolve to not spend anything. It might sound rather stoic but it’s one of the best ways to break the habit of just spending for the sake of it.

On the subject of stoicism, you should always avoid shopping on an empty stomach. That way you avoid buying all the expensive goodies like Swiss chocolate or cashew nuts you crave but don’t really need.

Another very useful tip is to avoid making any non-essential purchases for at least five days after payday. This works particularly well for people who are paid on the 25th of the month but whose debit orders go off on the 1st of the next month.

By waiting five days before spending on non-essential items, you avoid falling into the trap of buying expensive items like new shoes while you’re cash flush, only to see your debit orders drain your bank account a few days later.

A lot of this may seem like mere common sense but it’s surprising how few people realise that the ability to manage your finances has more to do with moderating behaviour than improving financial literacy.

For couples, a handy trick is to open a joint credit card account. Each party then pays an equal amount into the card, which is then used for joint expenses like groceries and entertainment.

It not only helps moderate spending on non-essentials like restaurant meals, but is also a useful way to avoid arguing over money.

Plastic is fantastic

If all of this still sounds a little too low brow for your liking, then here’s a tip for the more financially savvy:  use your credit card for all of your purchases. Need milk? Swipe your credit card. Bread? Airline ticket? Car service? Home renovations? Swipe your credit card.

Using a credit card doesn’t cost you anything beyond the annual fee for the card so provided you pay it off at the end of each month, you are not paying for additional “swipes” as is often the case with debit cards after a particular number of swipes are exceeded.

The trick though is to NEVER miss a payment. Credit card debt is among the most expensive and if you fall into the insidious trap of only paying the minimum monthly amount, then this is not for you. Iron-clad self-discipline is the only way to make this work.

The other caveat is to ensure you opt for a credit card offering that allows you to generate rewards. This is where it gets tricky as you often have to spend quite a lot before the reward accumulation outstrips the annual card fees. To get around this, you need to make sure that virtually all your monthly household spending is done via plastic.

It’s definitely an option that can work for the wealthier and more financially sophisticated consumer. The only qualifier is that you pay the card off in full, on time, no exceptions.

For more go to finweek.com or follow Finweek on Twitter.


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