It is important to fix your financial mistakes of the festive season first before you even think of what to do with and about your finances this year.
Most of us also feel a bit depressed after the holidays and we typically head to the malls to do the back-to-school shopping, using the limited funds in our already overdrawn accounts.
“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,” says Corne Welman, franchise principal and financial adviser at Consult by Momentum.
Instead of telling consumers what to do with their money, Welman rather shares a few things that you should not do in 2023, such as not withdrawing money from your investments for a holiday, not ignoring the power of your retirement savings to reduce tax, reviewing your risk portfolio and not using your emergency fund to pay for luxuries.
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Do not take money from your investments to pay for a holiday
Many people experience a feeling of guilt or despair about their festive splurges, says Welman, especially when they are suddenly faced with school fees, work-related expenses and a whole lot of overdrawn accounts when the new year begins.
The first port of call for most people will be to use savings or investments to pay off their debt and just move on, but this would be the wrong decision.
“This may result in more risk with this disinvestment with factors such as market timing, currency and systematic risk eroding all your hard-saved money and set you back more than a few months of saving.”
She says it is better to speak to your financial adviser and work out a plan to handle your debt in a way that does not affect your savings or jeopardise your retirement plans.
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The power of your retirement savings to reduce tax
Welman warns that consumers should not fall into the trap of skipping one or more of their retirement annuity premiums, as they may end up negating their retirement tax-savings benefits, which offer an easy way of bolstering 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.”
Review your risk portfolio for financial mistakes
If there is one thing the last three years taught us, it is that our future is not always in our own hands, she says. Risk products, such as life insurance, income protection and disability cover may feel like grudge purchases, but are critical to safeguarding your and your family’s financial well-being.
“At the start of the year, we may have all the best intentions of reviewing our portfolio with our financial adviser, but if you do not prioritise it, you find that half a year has passed and you left this important task too late.”
Your risk profile changes all the time, along with your lifestyle and circumstances and it is important to review these changes and how they affect your cover timeously, to ensure that you retain an adequate level of protection.
“Do not even think about reducing your risk cover without professional advice. There are often better ways of freeing up funds that do not potentially compromise your financial well-being.”
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Do not us your emergency fund to pay for fair-weather luxuries
After the pandemic, many consumers had a distinct urge to book a fancy holiday or buy something expensive to compensate for the hardship of the last few years. Welman suggests that instead, you should rather look at what the pandemic taught us: we do not need tons of material goods – all that matters is our health and that of those we love.
“We saw how fast things can change and 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.”
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