Therèse Havenga, Head of Business Transformation at Momentum Savings, sets out how much a holiday can really cost you if you don’t plan ahead. I usually sleep too late when it comes to booking a holiday. I’m so task-oriented at work that holiday times seem to creep up on me. Last year I had to take my family to a farm close to the seaside – we couldn’t get a dog-friendly place to stay in a coastal town at such a late stage. Worst was, there was no wifi, no cellphone signal and no electricity. How must teenagers plan their days, then? I was not popular. The above also meant that we had to travel more than anticipated, and spend more time in restaurants (that had Wifi!). So much for trying to save up and budget ahead of time. Now, with so many changes in the financial landscape, I’ve been wondering what people do who don’t save and plan for holiday expenses upfront. Can they afford to take last-minute chances, like I do with booking a place? I’ve asked our actuaries to do the sums to figure out the best way to fund your holiday. And they illustrate how hard it will be to make up for the alluring thought of going on holiday with retirement money, or on credit.

Three scenarios

Let’s consider three scenarios for accessing R30 000 for a holiday: using two-pot money, using your credit card, or saving up first. Let’s also consider what the real cost of each option is.

Using two-pot money to fund your holiday

The two-pot retirement system was introduced on 1 September 2024 in an attempt by the government to improve retirement outcomes. The system allows people to access some retirement money in an emergency, but some people seem to think they should use this money as spending money. Is this a feasible option?

• Let’s assume you’ll retire in five years. You have R42 000 in the savings component of your retirement annuity and you contribute R3 000 per month. Let’s also assume you earn R30 000 per month. This means the tax rate you usually pay is 26%.
• Withdrawal will cost you R200 (the withdrawal fee) plus the 26% tax you pay on the withdrawal.
• You will receive R30 880 when you withdraw the full R42 000 in your savings pot.
• If you had left the money to grow in the retirement annuity, it would have grown to R74 370 at a 12% growth rate before fees – let’s call this the “opportunity cost”.

In order to “pay back” the actual cost and the opportunity cost over the next five years, you will need to increase your monthly contribution by another R917 to restore the original maturity value. This results in a total repayment of R55 020 for the withdrawal.

Using your credit card to fund your holiday

• Your credit card interest rate is probably 21.75% (repo rate of 7.75% plus 14%, as set by the National Credit Regulator).
• If you borrow R30 000 now, you will have to repay R825 per month over the next five years. So the R30 000 will actually cost you R49 500.
• This also means you could almost afford a second holiday with the R19 500 (R49 500 – R30 000) you’re wasting on interest.

Saving up first to fund your holiday

• If you had saved R370 per month for the last five years, and your investment grew at a rate of 12% before fees, you would now have R30 000.
• Your total contributions would have been R22 200.
• This means if you save upfront, your R30 000 holiday will cost you only R22 200.

This means it costs the most to “borrow” from your long-term retirement savings. Then the credit card bites you with interest to repay. By saving upfront, your holiday will cost you not only the least, but less than the actual cost. The sums show just how much one benefits by saving upfront for big expenses like holidays – especially fancy holidays. Now I must just do my homework in advance so that my last-minute bookings don’t cost me more after I had diligently saved for a holiday. This post was based on a press release issued on behalf of Momentum.