With the entire planet being squeezed by the credit crunch, everyone can identify with Isla Fischer’s character, Rebecca, in Confessions of a Shopaholic. We’ve put together a list of financial lessons you can learn from the quirky chick flick.
Spending beyond your means is dangerous
Has a mannequin ever convinced you to buy a stunning green scarf even though you know you’re about to be unemployed soon? Okay, maybe mannequins don’t talk to you, but according to FNB Investment Product Planner, Jean Archary, when you spend money you don’t actually have yet, you’re spending beyond your means.
‘This includes buying on credit, taking out loans for non-essential items, living lavishly and spending money on things you just can’t afford,’ says Archary. A pair of shoes that originally cost R500 may, after the interest has accumulated, end up costing your R800. ‘It is important to live within your means, to try and reduce your cost of living and increase your income or cash flow so that you have available funds to buy the things you want on a cash basis.’
Don’t ignore your bills
Burying your sky-high pile of unopened bills in the darkest cupboard in your living room isn’t going to make any of those statements go away. In a recent column, personal finance writer Bruce Cameron says, ‘If you borrow vast amounts of money and live the high life, it will catch up with you, particularly when interest rates move up. If you have high debt and no savings, you will be caught out.’ If you simply have to buy on credit, take advantage of lower interest rates.
Never pay one credit card with another
No matter how you look at it, retail cards are credit cards, and paying your store account with your credit card is not a good idea. You may think you’re being responsible by paying at least one of your bills on time, but the debt will boomerang back to you. Mickey Gambale from Momentum Wealth Investment Specialists says you’re only postponing the inevitable – a debt trap that may take years to get out of.
‘What might have started off small can become a much bigger problem, and when you do eventually reach your credit limits you often find that you owe a lot more than you can pay,’ Gambale says.
Don’t spread your purchases across more than one card
Don’t fool yourself into thinking that using more than one card makes buying those sunglasses easier to pay off. If, like Rebecca, you charge R820 to your Visa, R550 to your MasterCard, R470 to your Virgin Money and R350 to your American Express cards for one item, you might not be able to keep track of all your repayments and end up paying more interest than is necessary.
‘Select the card that offers you the best deal in terms of interest rate and payment terms,’ says Ian Logan, marketing executive for information management specialists TransUnion. ‘It is also wise to limit the number of credit cards at your disposal as you may be tempted to spend more.’
Suze Orman, personal finance expert and author of Women and Money, says, ‘If you are in credit card trouble, you must cut up all of your credit cards now, with the possible exception of one card for emergencies. And don’t carry this card in your wallet!’ But don’t freeze it in a block of ice either. Treat your card as you would a fair-weather friend: don’t trust it.
Know the difference between cost and worth
Buying a pair of Gucci boots that cost in the region of four-figures just because they’ve been marked down by R200 is sometimes just not worth it. ‘High-end goods usually carry huge mark-up costs,’ says chartered accountant and financial consultant, John Duminy. ‘Make sure that what you’re paying for the item is equal to the value you attach to it. Is the extra price really worth it?’