Use this formula to make sure you don’t overspend on Black Friday 2022

While Black Friday 2022 promises big promotions and bargains on almost all products ranging from essentials to luxury, DebtSafe warns consumers to avoid “want” purchases if their budget doesn’t allow for it – adding that South Africans should calculate their debt-to-income ratio before considering spending any money.

It’s easy to understand why Black Friday is a popular shopping event, as its main draw is the word ‘discount’, with many South Africans intending to save some money on 25 November 2022.

This is especially relevant considering that South Africans are facing continuous challenges, frustrations and inconveniences, including load shedding and water restriction implementations, fuel and grocery price escalations, and repo rate hikes – among other things.

For this reason, over the past years, Black Friday has remained popular, and this is evident in its sales numbers. According to NielsenIQ, Black Friday was bigger than the traditional festive season purchase week in December 2021.

In fact, during Black Friday, more than half the volume of all fast-moving consumer goods (FMCG) products was sold on promotion, equating to a whopping R4 billion sold on discount deals, said NielsenIQ.

However, this aim of saving and taking advantage of the Black Friday deals could result in customers spending money they don’t have.

Therefore, as the consumer, you should exercise caution when participating in any upcoming online or in-store “shopping bonanzas” – even more so if your debts are already excessive compared to your monthly income, said DebtSafe.

Your debt-to-income ratio, also known as DTI, is essential in managing your debt. It compares your monthly income amount (gross – before deductions) with how much you owe (the total amount of your monthly debt obligations, such as rent, a home loan, credit cards, car payments, a store account, or other debt), said DebtSafe.

Calculating your debt-to-income ratio

The calculation in a nutshell, as outlined by DebtSafe:

• (+) Add up all your monthly debts.
• (÷) Divide your total debt amount by your income amount before any deductions (gross salary amount) and (x) multiply it by 100.
• (=) The final percentage (%) determines your debt-to-income ratio.

DebtSafe advises that you continually do the calculation to make informed choices before spending your hard-earned money or when wanting to use credit.

What your debt-to-income ratio means

• 0-20% debt-to-income ratio category – Your debt, compared to your income amount, is considered good. Therefore, you can continue to maintain your financial situation.

• 0-40% debt-to-income ratio category – Your debt amount compared to your income reflects a moderate financial position. Therefore, consider making minor budget/lifestyle adjustments to lower your debt.

• 41-60% debt-to-income ratio category – This percentage bracket shows that you are moving into risky territory. Consider making significant adjustments to lower your overall monthly debt amount, and partaking in any upcoming sale events or unplanned-for shopping sprees is not recommended.

• 60+% debt-to-income ratio category – Reaching a 60+ percentage is concerning and signals over-indebtedness. Your best course of action is to find an authorised professional or entity to help you return to a place of experiencing financial freedom again. Taking part in any Black Friday, Cyber Monday, Tech Tuesday, or Black November sale-of-the-year buys is a definite no-no.

DebtSafe said that even if your debt-to-income ratio is in good standing and you plan on treating yourself during Black Friday 2022, it is still a good idea to do your research.

“Ensure that what you buy is a real special and that your budget still allows for it,” it said.

“Managing your debt is unavoidable and crucial during these last few months of 2022. By determining your debt-to-income balance or ratio before taking on any additional debt during imminent, enticing events, you take an essential step towards informed decision-making and financial mastery.”

Read: Black Friday scams to look out for in South Africa – and how to avoid them

Use this formula to make sure you don’t overspend on Black Friday 2022