The ’silly season’ is synonymous with spending: spending quality time with loved ones, and spending more money than usual, in the process.
While millennials appear to be more financially savvy than previous generations, they are also facing greater tension between the responsibility to provide for their relatives and investing to reach their own financial goals.
This is according to the 2018 Old Mutual Millennial survey, which revealed that while South Africans between the ages of 18 and 34 years are more likely to save and invest their money than older generations, nine out of ten millennials are financially providing for their relatives.
As such, Elize Botha, Managing Director at Old Mutual Unit Trusts, says that the festive season can be a particular point of conflict for money-savvy millennials. “The holidays, which are often associated with both giving to others and receiving a year-end bonus, can put young professionals in a difficult position.”
However, Botha says that it is possible for millennials to have their proverbial Christmas cake and eat it, by approaching the festive season a little differently this year. “The first step is establishing what is most important in the bigger scheme of things. This requires being honest with both yourself and your family about how much you can afford to spend, and how much you need to invest in order to remain on track with reaching your financial goals.”
She acknowledges that finding this balance can be difficult. “You need to be realistic! It’s the holidays; you’re going to be expected to give a little extra. But it’s important to establish how much you can afford to give, without harming your goals,” says Botha, who suggests the 50, 30, 20 principal when it comes to deciding how to allocate your year-end bonus.
However, she warns that before a single rand is spent or invested, young professionals need to do everything they can to reduce their debt. “Debt reduction should be a priority for anyone with existing short-term debt, which usually carries the highest interest rate. In this case, rather than investing for the long-term, it would make more sense to allocate 50% of any bonus to reducing short-term debt, such as credit cards, personal loans or retail accounts, in order to save considerably by avoiding the high-interest payments.”
To stay on track with your goals, which are essential for you to achieve financial freedom, Botha suggests allocating at least 30% of any year-end bonus to top-up your financial priorities. “This could be your retirement contributions, emergency savings or other long-term goals. Finally, as long as you've taken care of your financial future first, you can spend the last 20% of your bonus on wants, instead of needs. You can spend this money on spoiling your loved ones and yourself over the festive season, as long as you’ve already taken care of your financial wellbeing.”
“To reach our financial goals, it’s often good to remind ourselves of what is most important to us. Every person is unique, and our relationship with money is often complex. When we’re working towards something that’s important to us, we’re often more willing to work harder to reach our goal,” concludes Botha.