Low interest rates and a growing economy could boost consumer spending this festive season, but don?t get carried away and land yourself in too much debt warns Lizwe Nkala from Old Mutual Personal Finance.

"Many people have had a tough year and are looking forward to spending time and money with their loved ones," says Nkala. "This is a great time to catch up and have a good time ? but don?t caught up in a debt spiral that could leave you even worse off next year."

People are under enormous pressure to buy things, says Nkala, and access to credit is relatively easy, especially for people who earn a regular income.

"Many people commit to more debt than they can afford to repay. And many people spend before putting money aside for future needs, like their children?s education, or their own retirement.

"Remember that interest rates not only fall, they can rise again. Many people have lost their homes or had their cars repossessed, because they could not afford the additional costs resulting from an increase in interest rates.

Committing future income
"When we buy something on credit, or take out a loan, we are making a binding legal commitment to pay money from our future income ? income we have not yet earned. All of us who have bought things on credit know that the pleasure we get from this new thing often wears out long before we have finished paying for it.

"Remember ? interest doesn?t actually buy you anything, it is just the price you pay to borrow money," he says.

Nkala suggests drawing up a proper budget as the basis for getting your finances in order for the New Year and suggests the following budgeting tips:

Where are you now?

  • Write down what you spend. In our computer-driven, electronic world, money has become unreal. The simple exercise of writing down how much money comes in and how much money goes out is very empowering.
  • Write down all your fixed expenses ? the things you have to pay every month, and which stay the same every month ? such as rent or bond payments, insurance premiums, etc.
  • Write down all your monthly variable expenses, such as food, transport, water and electricity and telephone costs.
  • Write down your irregular expenses that are not paid for every month, but have to be paid at some time during the year, such as school fees, car maintenance and home repairs.
  • Add them all together ? you might find that you are spending more than you are earning and are in debt.

    So, what are you going to change?
    "The second step to taking control of your money is deciding how you are gong to change the way you spend it," says Nkala.

  • Arrange your expenses so that the most important ones ? essential expenses ? come first.
  • If you need to cut back on spending, ask yourself: Does this expense seem too high? Could I reduce this expense? Is this expense really necessary?
  • Short-term savings are essential, as this is the money you will need to pay for any irregular or unexpected expenses.
  • Investments are essential, as this is the money you are putting aside for your future goals. The experts recommend saving 10-15 percent of your net income every month, over and above what you may be saving in company pension or provident funds.
  • Evaluate your debt. The more debt you have to repay each month, the less flexibility you have to plan and control how you spend your money. It is a very useful, and sometimes shocking, exercise to work out how much money you spend each year on interest.

    Plan how you want to spend your money
    What are your plans and goals? Some guidelines when planning your spending are:

  • Make sure you cover your essential fixed expenses first.
  • Put aside money for irregular and unexpected expenses.
  • Make sure you are putting some money aside for your future goals and retirement.
  • Ensure that you can cover your essential changing expenses.
  • Limit debt.
  • Give yourself some money for little luxuries each month.

    "Your budget remains at the centre of all your personal money management," says Nkala. "Once you have sorted out any problems you might have with the way you spend money, and once you have a realistic understanding of exactly what your expenses are each month, then you can start to plan how you want to spend your money."