Stretch your bonus: Expert tips to beat lifestyle and budget creep

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JEREMY MAGGS: It’s bonus season, but many South Africans say their 13th cheque just isn’t stretching the way it used to. What am I talking about? Well, rising living costs, tax bracket creep and year-end expenses all eating into take-home pay, and that is leaving households feeling squeezed in spite of those lucky enough to get a salary increase.

Consult by Momentum’s chief financial officer, Boipelo Ndimande, says the bonus isn’t the problem – it’s all about the budget. Boipelo, a very warm welcome to you. You go on to say that budgets are broken. Isn’t that just another way of saying that we are so overwhelmed by costs that we are almost out of control as South Africans these days?

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BOIPELO NDIMANDE: Hi Jeremy, thank you for having me. You’re correct. What I’m saying when I say budgets are broken is that we are overwhelmed by costs, and we’re not looking into each and every line item, that we don’t feel where our money is going. We don’t feel where our money is being spent and how we are spending it.

For instance, if we look at small things like lifestyle creep, we take on subscriptions, we upgrade our lifestyle. But we don’t realise that it’s those small things that eat into each and every cent, but given also that we haven’t received that additional income in our pockets.

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JEREMY MAGGS: So how do you deal with lifestyle creep then?

BOIPELO NDIMANDE: I would say, Jeremy, you would need to do a budget. You need to sit down and look at what comes in versus what goes out. There are a lot of places where we can make savings, and we are not looking at that. So we need to sit maybe with a financial advisor and look at each and every line item, consider whether it’s necessary in your spend, and if it’s not, then maybe you shouldn’t be spending on it.

Just look at each and every line item in your budget and interrogate it and be deliberate about it.

JEREMY MAGGS: What do you say to households, though, who feel the advice to re-look at the budget just ignores the reality, Boipelo, that there’s literally nothing left to cut?

BOIPELO NDIMANDE: Oh my goodness, Jeremy, that is a very good question. There are some lifestyle changes that you can make in your budget and cut something from there. If you do feel that you are really under pressure, then you can speak to a financial advisor.

Maybe contact your credit provider and see how you can work around your debt, and also how you can work around what is in your income and use it to the best of your ability.

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JEREMY MAGGS: You also recommend, if one is lucky enough to get a bonus, you recommend splitting it when it lands in your bank account. What does that mean and how does that work when December debit orders sometimes exceed disposable income?

BOIPELO NDIMANDE: That is correct. I would say you would need to split your budget. You would need to think about what is essential, what you need to be spending on. Maybe it’s the back-to-school items that you need to be spending on. Then think about your debt and also think about how you can decrease your debt. Because when you decrease your debt, you give yourself that relief monthly.

But I’m also saying to you, Jeremy, that we’ve worked so hard for our bonuses, so it doesn’t mean you don’t get to enjoy it. After you’ve done all the responsible stuff, then it’s time to have some guilt-free spending. But you would need to be very wise on how you split that bonus.

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JEREMY MAGGS: It’s also a difficult one. It’s all very well to tell consumers to plan better, to talk to their financial advisor, but if you look at year-end increases, Boipelo, like medical aid, insurance, school fees, all of these are non-negotiable and rising above inflation. Again, it’s a real conundrum.

BOIPELO NDIMANDE: It is a real conundrum. What I like to do is when I do my budget in the beginning of the year, I take those increases into account. So by the time you do get your bonus, and you do get your annual increase, you’ve already taken it into account.

So you see what you’re most likely going to end up with before you get that increase. So just start taking these kinds of costs into account because they are non-negotiable, so you have to take them into account.

JEREMY MAGGS: Do you think – and you said, and it’s good advice, to talk to your financial advisor because at least on paper they should know a lot more than we do. But sometimes they maybe offer generic solutions instead of confronting the deeper affordability crisis of an individual.

What sort of conversation do you need to have with that financial advisor as we draw towards the end of this year?

BOIPELO NDIMANDE: At Consult, we believe in advice with context. We get to understand you as an individual and understand where you’re trying to go in your life and what is at your disposal.

Then we start giving advice based on that. We give advice based on the individual and not generic advice. We need to understand everything that relates to you. So you need to have open and honest conversations with your financial advisor.

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JEREMY MAGGS: If a bonus these days is worth less than, say, 2018/2019, is there anything that needs to change, do you think, at policy level before budgeting advice can genuinely make a difference?

BOIPELO NDIMANDE: I would say there is a lot that needs to change, Jeremy. That’s a really good question. I would say there is a lot that needs to change.

We really need to look at the policies, the inflation, and also just how we remunerate employees.

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JEREMY MAGGS: Moving forward then, the best advice is to look at the conversation with the financial advisor and take into account all those extraneous items like tax bracket creep and information that is already in the domain, which perhaps you’ve ignored. It’s going to be a very difficult conversation, isn’t it?

BOIPELO NDIMANDE: It is going to be a very difficult conversation. Like I said, it really needs to be an honest conversation. You need to be honest with yourself and honest with your financial advisor. If you make those cuts, you make those changes, it really opens up a lot more opportunities for you and relief for you monthly.

JEREMY MAGGS: Well, some good advice there. Boipelo Ndimande, thank you very much indeed, Consult by Momentum’s chief financial officer. I do appreciate your time. Thank you.

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