Nomi Bodlani, Head of Strategic Markets at Allan Gray
Yes, but be mindful of your long-term financial goals
After 18 months of lockdowns and the easing of travel restrictions, optimism is finally returning to many South Africans who have had to halt their dreams of dashing off to far-off destinations. Germany, UK, US, Canada, France and Spain are now accessible to vaccinated South Africans. Closer to home, popular island destination Mauritius has also followed suit, with local low-cost airline FlySafair for the first-time offering flights to the island from December 2021.
“There is lots of exciting activity in this space, with airlines like SAA taking to the skies yet again. As confidence rises in line with vaccination rates, there are positive signs that the tourism industry may experience a much-needed uptick in bookings during the festive season,” observes Nomi Bodlani, Head of Strategic Markets at Allan Gray.
This is called “revenge spending”: Consumers who have been sitting on extra cash – whether from deferred spending or from that holiday that never happened in 2020 – rush to spend on experiences they have been missing out on since the start of the pandemic, like the holiday of their dreams.
Bodlani says that while ‘revenge spending’ may sound like a contrary thing to do in light of ongoing economic uncertainty, it must be remembered that the COVID-19 pandemic has affected people’s finances – and mental wellbeing – in very different ways.
“While it has highlighted the need for emergency savings as a buffer against tough times, it has also caused some to sit on extra cash – with almost everyone experiencing some sort of tragedy or anxiety,” she says.
In light of this, if you are travelling for the first time since the start of the pandemic, it is important to do so as responsibly as possible, given that uncertainty is far from over.
“After a very tough 18 months, if you are lucky enough to have a surplus of disposable money, there are ways you can make the most of it. The trick is to balance your short-term desires and spending with your efforts to stay on track to reach your long-term financial goals, which may have been thrown off kilter by the pandemic.”
Below are Bodlani’s top tips to ensure that while you revenge spend, you can still be mindful of your longer-term goals:
1) Keep up positive habits that you may have formed during the pandemic
Many South Africans may have seen their spending habits change during the pandemic (think no coffees on the way to work, cutting back on fuel costs due to less travel to and from the office, fewer opportunities to dine out, and so on), resulting in opportunities to save money.
“The pandemic has made us reassess our needs vs wants. Perhaps you now think more carefully about whether you really need that big-ticket item, or whether you could put that money elsewhere entirely, where it would work harder for you.”
Bodlani suggests looking at the positive financial habits the pandemic may have forced on you, and consider keeping those that have served your pocket well.
2) Have a plan and spend only what you can afford
Revenge spending can be a good thing as it helps to restore industries and local economies that have been decimated by the pandemic. Think tipping, eating at restaurants, going to shows and live events, and visiting tourist sites and attractions.
“Before you book your ticket, have an honest conversation with yourself. Consider whether or not you can stick to your financial plan and holiday budget. It doesn’t make sense to live above your means if you are borrowing against your future self,” she says, reminding South Africans to be mindful of spending too much, especially as “Jan-u-worry” is also around the corner.
She adds that if you are struggling to stick to a financial plan, or if you need help, speak to a good independent financial adviser.
3) Prepare for the unexpected
If you are travelling, you should factor in additional, unforeseen expenditure into your travel budget, especially given that the world is in a state of flux. Remember too, you may not experience travel as before the pandemic, with many holiday resorts’ capacity being curtailed, and available services, shops, and restaurants either being closed or only open at certain days / times.
“If you get COVID-19 and are stuck abroad, you may be forced to pay for the quarantine period, additional tests, or even a repatriation flight, which doesn’t come cheap,” warns Bodlani. “This should all be part of your planned travel budget, and not be confused with dipping into an emergency fund. You should also ensure that you have appropriate travel insurance in place.”
Queue tip four.
4) Don’t confuse your holiday fund with an emergency fund
Bodlani says going on a trip should form part of your short-term savings goals. While you may use a similar low-risk unit trust as you would for your emergency fund, such as a money market fund, you should have a separate account so as not to confuse the purpose of each.
“An emergency fund should not be used to fund a holiday or treat your loved ones over the festive season; rather it is a safety net for unexpected expenses and shocks to your income. Life happens – as we have so clearly been taught over COVID – and we need to be prepared,” cautions Bodlani.
“Another helpful way to think of an emergency fund is to see it as a form of personal insurance for your long-term investments, as it will provide you with access to money and prevent you from abandoning your long-term financial plans when emergencies threaten to compromise your financial health,” she explains.
“Money market funds are low-risk investments, which aim to deliver higher returns than a bank deposit and can be accessed in a short space of time. They don’t always keep up with inflation, which is why they are regarded as a short-term parking place for your money.”
Ultimately, and like most things in life, make sure you do your homework so that you are prepared, and not out of pocket if the unexpected happens.
“If your financial house is in order, and you are comfortable that you are on track to reaching your long-term goals, the only thing left to do is to enjoy your break,” concludes Bodlani.