Normally, most Indian companies manage to pay out a special bonus to employees during the Diwali season and this year has been no exception. Every Diwali presents a unique dilemma for you. How to balance the need to save from this bonus and the urge to spend? After all, Diwali is the festival of lights and festivities and you do not want to miss out on the sweets, gifts and crackers. Here are a few thoughts on balancing your spending urge and saving needs each time you face this dilemma around the Diwali time.
Allocate 20% of your bonus to Diwali spending..
Remember, long term wealth creation begins with discretion in spending. You can spend for Diwali but there is no need to mindlessly splurge money. A few basic steps are recommended. Why go to a swanky store and pay 30% higher when you can get the same product through online discounts. Anyways the likes of Amazon and Flipkart are falling over each other to please the Indian customer during the Diwali days. As well make the best out of it. Most of us tend to splurge on buying sweets, especially the expensive variety. Most of them are high calorie stuff. Why do you need to splurge and invite health problems for yourself? You can limit your spending on sweets. Lastly, avoid splurging money on crackers. It burns a hole in your pocket and also in the Ozone layer. Why to spend and also create a health hazard for millions in your city. As well, celebrate Diwali with diyas, new clothes and catching up with old friends and relations. That will be a Diwali productively spent.
You will actually be surprised by the money you save..
Well, most of us never really keep an account of how much we spend during Diwali as it is considered to be an auspicious occasion when the Goddess of Wealth is welcomed into your house. But that can be down aesthetically with minimal splurging of money. You will be surprised that if you hunt around for bargains, there are a plethora of wonderful deals you can strike and get away with. In fact, if you focus on value for money, you can substantially reduce your Diwali spending. Typically, we spend heavily each Diwali and end up adding to our calories or we end up creating problems of breathing. We can avoid both and still have a good Diwali.
How about using the money to reduce your high cost debt..
Remember, the best way to create wealth is to curb interest outflows. Most of us do not realize but we unconsciously run up huge debts in the form of credit cards and personal loans. Remember, these are all high cost loans. Personal loans cost up to 20% per annum while credit cards can cost up to 35% per annum. If you are having such usurious loans, you can never genuinely create long term wealth. Instead of splurging on your credit card or taking a Diwali loan, use your bonus this year to repay your credit loan or your personal loan. By getting rid of these high-cost loans, you will make a much bigger contribution to your long term wealth.
Invest the Diwali Bonus and structure it as an STP..
OK, let us assume that after your frugal Diwali spend and winding down some of your credit loans you still have a surplus left with you. How about investing the money in a mutual fund? After all, equity funds have consistently created wealth in the long run. But what about the Nifty at the level of 10,200! Actually there is a way out for that too. You can park your surplus in a liquid fund or a near-liquid fund and structure a regular transfer plan from the liquid fund into an equity fund. This will be beneficial in two ways. The money will earn higher than your bank deposit rate instead of lying idle. The STP will be structured in such a way as to be tax-efficient and also entail nil-exit load. Secondly, this STP will translate into an SIP into equities where the benefit of rupee-cost average will be available to you due to your phased approach. Effectively, it targets two birds with one stone.
Lastly, spend any balance on thoughtful gifts..
Diwali is not just about splurging on crackers and sweets but also on giving some thoughtful gifts to your near and dear ones. Remember the pecking order. First, you can limit your Diwali spending to 20% of your bonus received. Out of the balance80%, nearly 60% should be used towards your loan closures and your investments. The balance 20% can be effectively used to give very thoughts gifts. Many of us tend to give boxes of sweets and dry fruits. Believe me, nobody has the appetite or urge to eat so much these days. Instead find out what they have been waiting for. Your sister may be waiting for a new mobile or your brother for that new DVD in town. Your father will cherish that new watch and your spouse may relish that new pearl necklace or that smart looking cufflinks. These are all small thoughtful gestures that will stay with your near and dear ones much longer. After all, that is what Diwali is all about!
So, this Diwali let us focus on the balance between spending and saving. More importantly, let us also ensure that the spending is a lot more thoughtful and a lot less harmful to the environment!
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