January… you cannot mention the month without cringing at the idea of early mornings, weight gain and most importantly a tight budget. The moment the euphoria of the December holidays wears off, queue in the hangover that is January. Increased spending in the month of December can be attributed to the vast number of items on sale and consumers generally receiving remuneration earlier than normal (Riffkin, 2015).
According to Riffkin (2015) consumer spending fell from 98 USD to 81 USD from December to January. Furthermore, she states that spending has reduced by an average of 15 USD every year since January 2008. This suggests that regardless of information available on financial literacy and tips on how to save in January, consumers tend to spend a large portion of their remuneration on miscellaneous products.
With remuneration comes disposable income, with disposable income comes spending, with spending comes an entry of workers into the market to match the demand. This period of increased spending is an advantage for both the firms and the economy as it is a period of much needed economic stimulation. Though, the economic stimulation is short lived.
Whilst this is positive for the economy in the month of December the resultant shock of January is marred with decreased spending and stringent budgets. Consumers are usually overstretched and anxious during this period.
Though, Shields (2016) argues that not all consumers purchase their goods in December and some in fact defer their purchases in December in order to take advantage of the January “sale”. This gives an opportunity for retail firms to shift their advertising budgets from the everyday shopper to the deferred shopper (Shields, 2016). Though, it is important to note that the proportion of deferred shoppers to everyday shoppers is minimal which may translate to minimal revenue for retail firms.
To prevent consumers from over-spending African Unity life CEO Sonja Visser argued that consumers need to take caution on how to spend bonus income and overall spending in December. She further asserts that acquiring new debt to finance existing debt is counterintuitive and will lead to inevitable increased debt levels.
Personal finance YouTube sensation Dana Ryan of “Debt Free Dana” has formulated a non – spending challenge where consumers are compelled to only spend money on their essential needs such as food, shelter, transport and so forth in the month of January. The intention is to assist consumers to save money and prevent over-indebtedness.
She highlighted tips that would assist during the process once things got difficult. These are namely, identifying a goal to use the money. This ranges from saving for a vacation or paying off a loan. Furthermore, she argues that in order to avoid temptation consumers need to hide their debit cards and invite friends over for board games as opposed to going out for lunch or dinner. For individuals that struggle with discipline, confining transport money to work cupboards will go a long way in the risk management process.
Lamna Financial (2016) in 8 Tips For Surviving January Financially highlighted 8 tips that consumers can use to survive the January financial crunch. These tips include, creating a budget, paying creditors, setting financial goals, purchasing items on sale, selling unwanted items, purchasing cheaper quality products, carpooling and using your own assets when taking out a loan.
Whilst December is a month of happiness and celebration consumers need to plan for the month of January. A decent budget with a detailed plan will go a long way in ensuring that consumers are not overindebted. Spending habits and the philosophy around money needs to change in order to see any difference.
Like the common rule of investing, consumers need to forego current spending which is the sacrifice for future spending which is the return.