Budget before you holiday

Your dream holiday can transform invisibly into a financial nightmare faster than a Bali suntan fades in the office. So don't let the lure of the azure blind you to the reality that awaits when you return home. Picture: Bloomberg.

The holiday season is upon us and within the next few days most of corporate South Africa will be on leave.

This means that unless your financial affairs are in order you only have a couple of days left to ensure you can go on holiday with the peace of mind that you and your family will have a stable 2014 from a financial point of view.

Don’t overspend

Key to remaining in control of your personal finances is drawing up an honest budget that will help you prioritise your spending over the festive season.

Niel Fourie, Public Policy Actuary at the Actuarial Society of South Africa, says if you have not budgeted for presents, entertaining the kids, paying school fees in January and buying school books and uniforms, you run a very real risk of overspending.

Fourie advises that you take a good look at your finances for December and January and set aside the money needed for essentials like school fees and emergencies and then allocate fuwnds for presents and entertainment.

“A good idea would then be to start 2014 with a budgeting exercise that will help you put in place a workable plan to enable you to achieve your financial goals for the New Year.”

Avoid debt

Buying on debt is expensive and unless you are buying an asset like a house or a car, taking on credit rarely makes sense.

“When you buy on credit you are likely to be charged the maximum interest rate allowed by the National Credit Act, which is currently 21% a year.

In addition you may also end up paying additional charges such as a once-off initiation fee, a monthly premium for compulsory credit life insurance, and a monthly service fee. Lastly, add to all of this VAT of 14%.”

Cover yourself

Research has shown that the average South African income earner is significantly underinsured.

Fourie recommends you speak to your financial adviser to help you assess your long-term as well as short-term insurance needs for the holiday season and beyond.

Make sure you have a valid will

Since humans do not like facing up to their mortality very few consumers have in place a proper will that details exactly what needs to happen in the event of death.

Fourie points out that a will is an important legal document that is best drawn up by a legal expert.

If you do not specify a beneficiary, your life insurance proceeds will form part of the estate. This means your family will have to wait some time before they receive money, and only after the estate has repaid all debts.

Check your medical aid cover

Fourie stresses that you cannot afford not to have medical aid cover or at least a hospital plan in place. If you do not, speak to a medical broker with urgency.

If you are on a medical aid, make sure you know what you and your family are covered for.

“Don’t be caught with too little cover when you can least afford it.”

Emergency contacts

In an emergency like death and disability, does your family know who to contact regarding your finances?

Draw up a list, headed by your financial adviser, together with your policy numbers and details of other investments.

You should also list bank accounts, medical aid details, and short-term insurance details. Most importantly, make sure that everyone knows where to find this list.

Plan ahead

“Meet with your financial adviser at least once a year to assess whether there is a need to rebalance your investment portfolio and whether your insurance cover, both long-term and short-term, is still relevant.

Also read through your will and check the beneficiary nomination forms for your life cover and pension fund proceeds.”

This report was prepared by Actuarial Society of South Africa

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