Wealth India Financial Services suggests festive spending vs. long-term savings: Striking the balance

Celebrate smartly: Balancing festive spending with long-term financial goals

BRAND CONNECT | PAID POST

Published: Nov 8, 2024 03:37:51 PM IST

Updated: Nov 8, 2024 03:45:55 PM IST

New Delhi [India] October 28: As the festive season approaches, so do our plans for shopping, travel, and celebration. It’s a time for joy and indulgence, but it can also be a time when many people slip up financially, especially their SIPs in Mutual Funds. Overspending during this period is a common concern for individuals who are trying to manage their personal finances, especially for those who are also focused on long-term wealth building. Balancing festive spending with your long-term savings goals is not only possible but crucial for financial health.

Why Festive Spending Can Derail Financial Goals

Festivals in India, such as Diwali, Christmas, and New Year, often involve expenses that aren’t part of our usual monthly budget. From purchasing gifts and new clothes to making home improvements and throwing parties, the costs can quickly add up. In fact, a survey by Deloitte found that during Diwali, urban Indian households tend to increase their discretionary spending by 30-40%, with shopping and travel taking up the bulk of the expense.

While indulging in these festivities is part of the cultural fabric, unplanned or excessive spending can set you back on your financial goals. Whether you are saving for a home, your child’s education, or retirement, overspending during the festive season could mean diverting funds away from these essential long-term investments.

Long-Term Savings: The Need for Discipline

Building wealth is not a sprint; it’s a marathon. And just as a marathon requires a steady pace and persistence, so does wealth creation. SIPs (Systematic Investment Plans), long-term mutual funds, and retirement savings need regular contributions over a long period to grow effectively.

Let’s take a simple example: If an individual consistently invests ₹5,000 per month in an SIP for five years with an average annual return of 12%, their total contribution of ₹3,00,000 would grow to approximately ₹4,32,000. On the other hand, if they miss even a few months’ worth of contributions due to festive overspending, the compounding effect diminishes. This could potentially reduce their returns by as much as ₹30,000-₹40,000 over the long term. Discipline, therefore, is the key to ensuring that festive spending doesn’t derail your future financial plans.

How to Strike a Balance

The key to enjoying the festive season without derailing your long-term financial goals lies in smart planning. Here are a few practical strategies to help you manage both festive expenses and long-term savings:

1. Create a Festive Budget: Before you start shopping, it’s essential to set a budget for your festive spending. Include gifts, travel, parties, and even smaller expenses like decorations. Once you have a clear idea of your budget, stick to it. Use a budgeting app if necessary to keep track of every rupee.

2. Separate Festive Funds from Long-Term Savings: Many financial experts recommend setting aside a portion of your monthly income specifically for festive spending. You could create a “festive fund” months in advance, so you’re not dipping into your long-term savings. For instance, if you expect to spend ₹30,000 on Diwali, you could start saving ₹3,000 a month from January to October.

3. Invest Bonuses Wisely: If you receive a festive bonus from your employer, it’s tempting to spend it all at once. However, consider splitting it between necessary purchases and long-term investments. For example, if your bonus is ₹50,000, you could spend ₹20,000 on festive expenses and invest the remaining ₹30,000 into an SIP or a high-performing mutual fund.

4. Use Festive Offers to Your Advantage: Many companies and banks offer cashback, discounts, and rewards during the festive season. While it’s important not to fall into the trap of impulsive purchases, using these offers wisely can help reduce overall expenses. For example, several e-commerce platforms offer 10-20% cashback on purchases made with specific credit cards.

5. Prioritize High-Value Expenses: If you’re renovating your home or buying high-value items like electronics, look for deals that coincide with the festive period. Additionally, consider whether these are necessary expenses or if they can be postponed.

6. Stay Consistent with Your SIPs: No matter how tight your festive budget becomes, do not pause or stop your SIPs. These consistent contributions are what drive long-term wealth creation. Missing even one or two installments can have a significant impact on the overall returns, especially when compounded over time.

Long-Term Rewards: The Power of Compounding

The most powerful ally in wealth creation is time. The earlier you start and the more consistent you are with your investments, the larger your returns will be, thanks to the power of compounding. Here’s an example:

Let’s say you started investing ₹10,000 a month in a mutual fund SIP in October 2013. By October 2023, assuming an average annual return of 12%, your investment would have grown to approximately ₹23.6 lakh, even though your total contribution would have only been ₹12 lakh. By staying disciplined and avoiding the temptation to divert funds during the festive season, you can ensure your wealth grows steadily over time.

Indulging too much into the investment narrative during any festive season is a buzzkill, but it definitely is essential. Festivals are a time to enjoy, but they can also be a time when financial discipline is tested. Striking a balance between festive spending and long-term savings is not just possible—it’s essential for financial health. By creating a budget, staying consistent with your investments, and using festive offers wisely, you can enjoy the festivities today without compromising your financial future.

The pages slugged ‘Brand Connect’ are equivalent to advertisements and are not written and produced by Forbes India journalists.