Five ways to budget for the festive season
Christmas is traditionally a joyous time of year, but the combined costs of celebrating and buying gifts can quickly turn the festive season into an expensive memory. Christmas doesn’t have to be extravagant – experiences such as spending time with family are often more memorable than material items. Planning ahead can also help ease the burden, as can talking about expectations with family and friends. Here are five saving and budgeting strategies that you might like to consider to help you make sure you don’t end up paying for Christmas into the New Year.
1. Use a spending tracker Cash has been an accepted means of payment for centuries but it’s quickly being replaced by cards, mobile devices and digital payments schemes. In fact, the share of consumer payments made in cash dropped from 69% in 2007 to 37% in 2016, according to the Reserve Bank of Australia (a). While they’re convenient, digital payments make it harder to keep track of money in the moment. It’s easier to not think of the impact a $100 purchase may have on your budget when all you need to do is tap a card. Online spending trackers and apps offer a digital alternative to manually updating a spreadsheet to monitor your money. They automate the process by connecting multiple accounts and cards to capture your total expenditure. This makes it simple to identify any areas where expenditure is getting out of control or where easy savings can be made. Some apps allow you to set a budget or thresholds that trigger spending warnings. Common third-party apps include Pocketbook, MoneyBrilliant, and Spendee while financial advisers tend to use myprosperity or Moneysoft. Some financial institutions also offer mobile apps or online tools that categorise expenditure and provides immediate spending alerts, which can work for people who use one bank.
2. Set up a separate savings account Placing money in a separate account can help boost motivation as you watch your savings climb. It also makes it harder to inadvertently blow the budget if your Christmas savings are mixed with other cash in one account or to give in to temptation and buy something else. Many banks now allow you to set up a separate fee-free account to save, which you can label “Christmas savings” or similar. It’s also easy to set up an enforced direct debit savings plan to save small amounts over time. For example, it’s easier for most people to find $83 a month than an extra $1,000 to spend at Christmas. ‘Round up’ saving options are a newer service that are becoming more popular. They enable you to round up each purchase to the nearest $1 or $5 (which you’re less likely to notice) and put that cash into a savings account.
3. Watch the credit cards Credit cards are an easy way to pay – and an even easier way to accrue debt. The corporate regulator, ASIC, recently estimated that 18.5% of consumers are struggling with credit card debt after a reviewing more than 21 million credit card accounts (b). In June 2017, almost 550,000 Australians had fallen into arrears, while 930,000 suffered persistent debt and 435,000 people were repeatedly repaying small amounts. Unfortunately, while official interest rates have been cut to historic lows, credit cards still often charge significantly higher rates. It’s crucial to identify and then pay off costly credit card debt as fast as possible. Monitor your spending with online tracking tools and set up a direct debit to ensure that your card repayments are always made on time. 4. Be cautious about using ‘buy-now, pay-later’ schemes Buy-now, pay-later schemes such as Afterpay and Zip are booming in popularity. They offer consumers interest-free finance to pay for purchases over time and many younger shoppers are choosing to use these platforms instead of credit cards. However, there are traps to be wary of. These schemes charge retailers (rather than customers) a percentage of the transaction value. The reason retailers do so is because consumers using buy-now, pay-later schemes spend more. Adam Bianco, a director of shoe store Tony Bianco, has previously said that Afterpay customers have average orders that are almost 60% higher than those using other payment options (c). Other retailers have reported Afterpay customers place average order around 18-24% higher. Some buy-now, pay-later schemes also charge various fees such as monthly account-keeping fees or late fees if repayments aren’t made on time. Afterpay capped its late fees from July 1, 2018 however, late fees still form a substantial component of its revenue – the company charged customers almost $18.2 million in late fees over the first half of 2018-19(d).
5. Beware of using seamless transport and food apps Mobile phone apps and online shopping make life convenient, but the hidden price is often high. It’s easy to spend too much on basics such as food and transport when apps such as Deliveroo and Uber make the transaction seamless. It’s all done without ever handling or counting cash, tapping a card on a payment terminal, or entering card details online. Yet real money is debited and for some, costly spending habits are quickly formed. Awareness about the way these apps work is the first step before deciding on a strategy. Some people can cut down their use or pick cheaper options. Better meal planning provides a similar range of food at far cheaper prices during the weekly grocery store shop while public transport or car-pooling offer a slightly longer journey but at a fraction of the cost. For other people, deleting the apps altogether is a sure-fire way to beat willpower. Anticipation is part of how much we enjoy an overall experience. With some planning and self- restraint now, you and your loved ones can have an even merrier Christmas.
(a) “Cash | RDP 2017-04: How Australians Pay: Evidence from the 2016 Consumer Payments Survey.” Reserve Bank of Australia, 23 Aug. 2019, www.rba.gov. au/ publications/rdp/2017/2017-04/cash.html. (b) “ASIC’s review of credit cards reveals more than one in six consumers struggling with credit card debt” ASIC, asic.gov.au/about-asic/news-centre/find-amedia-release/2018-releases/18-201mr-asic-s-review-of-credit-cards-reveals-more-than-one-in-six-consumers-struggling-with-credit-card-debt. (c) Afterpay 2017 AGM Presentation. Afterpay Touch - Announcements, Results and Reports. Results Presentation H1 FY19. www.afterpaytouch.com/resultsreports. (d) Results Presentation H1 FY19. Afterpay Touch - Announcements, Results and Reports. www.afterpaytouch.com/results-reports.
The information contained in this page is of a general nature only and neither represents, nor is intended to be, specific advice on any particular matter. The contents are not to be relied upon as a substitute for financial or other professional advice and has not taken into account your individual objectives, financial situation or needs. Prior to implementing anything discussed, please seek professional financial, taxation and legal advice. While the sources for the material are considered to be reliable, responsibility is not accepted for any inaccuracies, errors or omissions