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How much can you afford to spend this festive season?

In these times of concern and watchfulness triggered by the pandemic, family finances have gotten altered. Can one still afford to spend like before?

With Diwali and Christmas around the corner, there is a lot of excitement in the air. Festivals across the globe have always been about gifting and spending quality time with family. 

However, in these times of concern and watchfulness triggered by the pandemic, family finances have gotten altered. Can one still afford to spend like before? 

It is better to follow a process before making any purchase this season:

Go with a shopping list

Often, people keep visiting physical stores or browsing online until they find the ‘right’ item. They initially set out to buy clothes and gifts and end up buying sneakers, watches and jewelry. If you are unsure of what you want, you might resort to ‘impulse’ purchases. In the same vein, shopping-at-the-last-minute results in overspending.

So, go with a shopping list, enlisting all the items that you intend to buy. Given the precarious financial situation, try to tighten the list as far as possible. 

Check your budget

Ideally one should plan for festive spends well-in-advance by floating a separate fund. So, if you are looking to spend about Rs 50,000 for festival celebrations, then you need to save Rs 4,200 each month for a year to be able to accumulate the required corpus. If you haven’t done it, figure out how much can you allocate from your annual budget without compromising your lifestyle?

Revisit the shopping list and cut the excesses until it fits your budget.

Avoid debt

Everything be it car, fridge or air conditioning is available on credit. Ensure you don’t take a loan to buy them as it increases the overall cost for you. Sometimes, manufacturers resort to zero-interest loans for selling gadgets or electronic items that could be repaid in 8-12 instalments through your credit card. Ensure you don’t financially stretch yourself in the process. 

Furthermore, have an eye on your debt-to-income ratio which is calculated by dividing all monthly debt payments (home loan, auto loans, student loans etc) by monthly income. It articulates how much of your income is set aside to just make debt payments. A high debt-to-income ratio is a sure sign of vulnerable finances. 

Bonus is not a windfall and is only a part of your regular salary. Ensure you make the most of it. 

Use your bonus wisely

Likely to get a Diwali or a Christmas bonus? Ensure you divert it towards important financial goals like that of retirement or children’s higher education. Or use it to bump-up your emergency fund and prepay part of your home loan. 

Bonus is not a windfall and is only a part of your regular salary. Ensure you make the most of it. 

Postpone big-ticket purchases

Planning to buy a home in these times? It is better to wait for things to normalize before you take such big financial decisions. While the sellers might come with lucrative offers, know that buying a home or a car with a loan entails a long-term financial commitment. Wait for things to return to normal, while continuing to contribute towards a fund that takes care of its down payments.

Takeaway

It’s all about getting a little crafty as well as financially prudent this festive season. Shop with a budget and without resorting to borrowing while introducing financially prudent traditions that are high on memory.

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