Consumers should spend cautiously, despite the positive outlook for the year
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The beginning of the year is a good time for consumers to take a look at their finances and set the tone for how to use their money in 2025. This requires forming healthy spending habits and incorporating smart saving tips that will stretch their finances throughout the year.
The first rule of budgeting and creating financial freedom is to have a plan that is realistic, sustainable and to maintain consistency throughout the year while avoiding falling into bad spending habits, according to Sheila-ann Robey, a certified financial planner at Liberty.
“Behaviours are a critical part of financial planning because once we get an influx of cash and if we’re not monitoring our behaviour, if we’re not self reflective, that money is just going to be used to fund a lifestyle again and again,” Robey told the Mail & Guardian.
“The emotions and the relationship to money is far more important for me than how much someone actually earns a month.”
Consumers should conduct a spending audit at the start of the year by printing bank statements and sitting with a financial advisor to assess where their money is going and where they could realistically cut down on unnecessary spending, Robey said.
“An important part of the psychological process when it comes to financial planning is identifying that immediate need that has to be satiated then repurpose that money. That’s a more sustainable approach to financial planning and budgeting.”
The right approach to saving money is to start right away instead of waiting to save a lump sum; this will create a habit of saving money more frequently no matter the amount.
“Financial planning and wealth creation is 80% behaviour and 20% knowledge. You don’t need to know anything, just do it, regardless of how small it is,” Robey said.
During 2024, the South African Reserve Bank cut interest rates by a cumulative 50 basis points — the first reductions in four years — bringing the repo rate to 7.75% at year-end.
This, coupled with the easing in inflation to 2.9% in November from 5.3% in January and the stable electricity supply from Eskom, might have given consumers a sense of a “false economy” encouraging them to increase their spending over the festive period and in the new year, Robey said, urging them to rather remain cautious to stay ahead of the curve.
“You need to plan accordingly, so that regardless of what inflation is doing and regardless of what interest rates are doing, what’s coming in is still more than what’s going out. So always prepare for the worst.”
*Tumi Moloi, a mother of two teenage boys, told the M&G that she used to take out a loan to pay for January expenses after the December festive indulgence, which landed her in more financial trouble.
But for the past five years, Moloi has learnt to pay off all her dues — including electricity, medical aid, car insurance and phone bills — by the 20th of December, and keep a small portion aside for fun during the rest of the month. This ensures that she can afford to buy school uniforms, stationary and pay a portion of school fees in January.
Another method she has mastered is saving three months in advance for major expenses such as family occasions or gifts for her children.
Saving and budgeting doesn’t have to be a chore and can be an activity that the whole family can get involved in, said market commentator and investor Simon Brown.
He added that if more family members are involved in the budgeting process, it becomes easier to stick to it and hold each other accountable.
A full-proof method to watch where money is being spent and where it can be saved is to keep a set amount of cash aside in an envelope every month for recreational activities — including take-away food, dinners and parties or outings.
“[Keeping cash] makes it so much more tangible, because part of the problem with the budgeting process is that we don’t see money. We swap credit cards, we’ve got debit orders. It just sort of happens. Making the entertainment budget actual cash makes it so much more tangible,” said Brown.
Following an election year and the uncertainty around the economy, Brown said South Africans are going into 2025 on a stronger footing thanks to the functioning and stable government of national unity, a further easing of inflation, and the possibility of more interest rate cuts which will add more money into consumers’ pockets.
“My sense is that as a country, we’re actually incredibly well positioned, and a lot can go right but there could be a total black swan event that happens somewhere that just derails global economies and takes us with it, because there’s no avoiding it. But I think we’re looking quite good for 2025,” said Brown.
With reduced interest rates, consumers who have mortgages will see less money leaving their accounts. Brown said it’s important to add this extra money in their budgets, otherwise it will merely disappear into their current expenses.
“Maybe that plan is to pay off other debt. Maybe it’s school uniforms or something like that – whatever it might be — but plan for it, even though it’s a small amount in the big picture, because otherwise it just disappears,” he said.
Robey’s best advice is to approach January budgeting like setting new year resolutions, and to take actionable steps to stay consistent with the exercise in order to meet the ideal financial outcomes.
*Not her real name
