It’s the time of year when lots of seemingly unrelated elements can combine to cause the perfect financial storm. Black Friday, summer holidays, festive-season marketing, early salary payments and year-end bonuses can be a dangerous combination.
According to South Africa’s largest debt counsellor, DebtBusters, there’s always a significant spike in enquiries about debt counselling in January and February from consumers who haven’t managed to weather the year-end.
What typically happens is that many people are paid their December salaries early – mid-month, rather than at the end of the month. This boosts their bank balance at a time of month when they’d normally have less money, explains Marlies Kappers, head of marketing at financial services provider, DirectAxis.
For those lucky enough to get a year-end bonus, there’s even more money than usual.
“Because it’s the holiday season, it’s easy to overspend and if you’ve been paid early in December, you have to wait for up to a month and a half before you get paid again at the end of January,” says Marlies.
There are other things consumers need to think about when considering their year-end budgeting. One of these is the early debit order run.
This means that debit orders, for companies which subscribe to the system, get processed as soon as your salary is paid into your bank account.
“If your salary is paid in mid-December then that’s when the debit orders will come off, rather than at the end of the month when you usually get paid,” explains Marlies.
The reason for this is to ensure there’s enough money in your account when the debit orders are processed. It’s important to remember that a debit order is an instruction you have given the bank to pay a third party. If there are insufficient funds in the account to do this, the bank will penalise you. Worse, it will negatively affect your credit rating, which means you may not be able to borrow money, get financing or will have to pay higher interest rates in the future.
Think of the early debit order run as a financial fusebox that helps prevent overloads on your bank account.
“If people aren’t expecting their debit orders to be processed when they get paid earlier in December it can make the wait for the next pay cheque seem even longer,” says Marlies.
This can be compounded by other expenses in the New Year, such as children needing new school uniforms and stationery.
She suggests the following to avoid this situation:
Make a plan: If you get paid early, remember you’ll have to stretch your budget until the next pay cheque. Also consider any upcoming expenses in January. Plan your spending accordingly.
Resist overspending: The combination of a year-end bonus and early salary payment may make you feel flush but resist the temptation to splurge. First make sure you have enough money to cover your expenses into the New Year. Think about using some of your bonus to reduce or settle some debt. If you can, try to save some money before spoiling yourself.
Pay attention: Don’t ignore correspondence or messages from banks or other financial service providers informing you about earlier debit order payments. If you know your debit orders will come off earlier, you can work out how much you’ll have to spend until you get paid in January.