Before the Festive Season Begins: 7 Money Decisions Worth Making Now

Festivals are supposed to be the time when families come together and not when months of financial sacrifices go down the drain

But the weeks preceding India's festival season are known to be among the easiest time to splurge.

Gifts, new clothes, holiday plans, home renovation, electronics, dining out, celebrations, jewelry, festive sales… and the list goes on.

Each expense, on its own, seems innocent enough. But pooled together, they can create a surprisingly large bill.

The challenge only grows when discounts, credit-card benefits, instant loans, and "no-cost EMI" options dilute the sense of value for big-ticket items. That is why one of the easiest ways to stay on top of your festive finances is to think through these seven questions before the festival shopping commences

1. Decide Your Festive Budget Before You See the Sales

The easiest budget to adhere to is the one that doesn't exist.

While you can think about what you can afford to buy at the discounted rate, ask yourself the bigger question: how much can I afford to spend on the festival?

This number needs to be ideally derived from your post-tax savings, existing obligations, and recurring expenses, and not your entire credit-card limit.

Once you have the number, you can divide it into appropriate heads, such as:

Depending on your own needs, your festival budget could be lower or higher. But the idea is to know the number before the sales begin to tempt you.

Why it's important:

Festive expenses rarely come as a single large payment.

Rs. 2,000 here, Rs. 5,000 there, and Rs. 8,000 for something else can add up to a sizeable sum. Only at the end do you realize how big the festival really was.

Wirelio tip: Have the final number in mind before you get tempted to buy something small.

2. Know the Difference Between "Festival Expenses" and "Festival Upgrades"

There is a big difference between buying stuff for the festival and buying stuff because the festival is happening

A new dress to go out in is one thing. But buying a n ew phone because the "old one was getting old" is another. The same goes for televisions, washing machines, sofas, cars, and pretty much every other durable.

Festival sales are a good excuse to buy something you were intending to buy, but the reverse should not be true.

Before you buy something expensive for the festival, ask yourself if you would have bought it even if there was no sale. If not, it is probably an upgrade, and not an expense.

3. Know Your Credit-Card Statement Before You Use It

Festive shopping and credit cards are two sides of the same coin. Cashbacks, reward points, instant discounts, and EMI options only make the two more intertwined. But before you begin using your credit cards for all your festival purchases, it is important to know the following:

• Outstanding balance,
• Existing EMIs,
• Credit limit,
• Due date,
• Charges, and
• Other applicable fees.

If you have a large outstanding balance that you do not plan to pay back soon, it may be best to avoid using the card for smaller festival purchases.

As the Reserve Bank of India's financial-literacy portal notes, it is important for consumers to read the fine print when it comes to credit cards, as "paying only the minimum amount due helps in reducing overall liability."

Speaking of minimum payments…

Minimum payment trap

A large credit-card bill may actually be small if you only have to pay the Minimum Amount Due.

But, as mentioned earlier, this is far from actually paying off your dues. Based on your card's terms and conditions, a hefty interest may continue to accrue on the unpaid amount.

Wirelio tip: Do not use the credit card as an excuse to spend more than you can afford to repay later.

4. Think Hard Before Browsing Through "No-Cost EMI"

There is arguably no more enticing phrase in the entire universe of festive shopping than "no-cost EMI".

A Rs. 60,000 product has suddenly gone from being prohibitively expensive to something you can easily afford in installments. The Rs. 60,000, however, is still there, only disguised as Rs. 5,000 that you will have to pay every month. That is why you must always ask the following questions before considering any "no-cost EMI" option:

• Total amount payable,
• Processing fees (if any),
• GST (on the processing fees),
• If the "discount" has actually been built into the EMI, and
• Consequences of missing a payment.

You also need to factor in other ongoing EMIs, especially if you plan on making multiple purchases. A Rs. 3,000 EMI here and a Rs. 5,000 EMI there can be much harder to manage than you expect.

5. Do Not Liquidate Your Emergency Savings

The sole purpose of maintaining an emergency fund is to ensure that you have enough money set aside for any unforeseen circumstance.

This includes medical bills, loss of job, home repair, or even an unexpected family visit. Festive sales should not be considered an emergency, no matter how hard retailers try to convince you otherwise.

If you think about it, festivals are, in fact, recurring expenses. They may be once-a-year, but they are still predictable. True emergencies, on the other hand, are never once-a-year.

It is a good idea to keep your emergency fund separate from your festival budget.

Fundamental finance truth: Predictable expenses should be covered by predictable income.

If you know that Diwali, weddings, holidays, and school fees are going to come every year, it is best to build a separate savings for those rather than draining your emergency savings every single year.

Think ahead :  Say you want to save Rs. 60,000 for the next festive season. Instead of worrying about how you will come up with that much money in one go, save Rs. 5,000 every month. By the end of the year, you will have your Rs. 60,000 without having to liquidate your emergency savings.

6. Decide What to Do With Your Bonus Before You Receive It

For many, the festival period is synonymous with bonus wages. For some, it could be a period of increased revenue, depending on their work profile.

As you can imagine, this can be an incredibly lucrative period for making purchases.

To avoid the "I-earned-it-so-I-deserve-to-spend-it" mindset, it is important to always decide what to do with your bonus money before actually receiving it.

A good way to do that is to divide your bonus into these categories: celebration, savings, repayment, and investment.

There is no right or wrong percentage for any of the categories. Someone with significant debt may choose to allocate more money toward repayment, while someone without sufficient emergency savings may want to prioritize savings. And someone who is completely debt-free and has adequate savings may want to allocate more toward celebration.

The most important thing is to give your bonus a category before it becomes regular income once again.

7. Have a Post-Festival Budget Before You Have a Festival Budget

There is an entire section on pre-festival planning on this page, but there is one part that is sorely underrated: post-festival planning. In short, it is important to not only think about how you want your finances to be before the festival, but also how you want them to be after the festival is over

Ask yourself the following questions:

Will I still have credit-card dues? How many new EMIs will I have to contend with? Will my emergency savings still be there? What about my regular savings and investments? Are there any other large expenses right after the festival?

School fees, insurance premiums, weddings, holidays, and income tax are all regular expenses that will not go away simply because the festival season has ended.

Try the November test :

Before buying something expensive for the festival, try imagining that it is November and the sale is no longer on. Would you still be happy with your purchase when the credit-card bill arrives? Would you still be able to manage your festival expenses if this Rs. 60,000 purchase has to be broken down into Rs. 5,000 every month?

Festive offers aren't the enemy. Unplanned expenses are.

Financial planning should not take the fun out of festivals. They are still meant to be a time of celebration after all. Buying gifts for loved ones is important. Taking your parents on a vacation is important. Having good food at home is important. Buying new clothes and decorating the house are also important. But none of it should come at the cost of your financial well-being.

Festival sales can help you get what you want at a price you can afford. Credit cards can make shopping easy and fun and get you reward points and cashbacks. EMIs can make big-ticket purchases easy to afford.

The problem arises when any of these financial tools begin to dictate your spending rather than facilitate it.

A Simple Festive Checklist

Before the festival season begins, ask yourself the following questions:

• Have I decided my festival budget?
• Do I know my credit-card liabilities?
• Have I considered my existing EMIs?
• Am I not compromising my emergency savings?
• Are my regular investments and savings continuing?
• Am I buying stuff because I need it or because it is on sale?
• Will I be able to manage the bills post-festival?

By asking yourself these questions, you are already doing a great job of managing your finances during the festival season. If you can answer most of them confidently, then you are ready to enjoy the festival season without having to worry about your finances afterward.

The Best Buy During Festive Season Isn't Always the One On Sale

A little planning goes a long way when it comes to finances, especially during the festival season. Decide your festival budget, keep track of your liabilities, and make sure that your regular expenses and investments are continuing. Ask yourself if you are buying something because you need it or because it is on sale. And most importantly, never forget that the best festive purchase is the one you will not have to worry about later in the year

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