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Mindless festival splurge can turn into festi-trap

List out the things you require and budget for the same, based on surplus money available. This will help you spend within budget

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Mindless festival splurge can turn into festi-trap
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The arrival of Ganapati marked the beginning of the festive season. Navratri, Diwali and Christmas offer us many opportunities to splurge, egged on by bumper online sales, jaw-dropping discounts, and other offers to lure buyers. However, many times individuals go overboard with their festive spending and end up in debt trap, the likes of which can grip you till the festival comes next year. Personal finance experts tell DNA Money readers the common pit-falls of festival spending and the ways to side-step such financial problems.

Stick to an honest list: The most important thing that goes hand in hand with saving is planning. Make an exhaustive list of everything you would like to spend on—cloths, accessories, furniture, consumer durables, crackers, gifts for friends and relatives, and more. Once you are ready with your shopping list, start purchasing only the items mentioned in the list. If you stick to your shopping list, the chances of overshooting your shopping budget will be smaller. The convenience of buying practically everything through credit cards or funding through a loan, tends to make us buy things beyond our budget, which eventually leads to huge credit card bills and EMIs.

Chartered financial analyst Amar Pandit, founder, HappynessFactory, says, "We strongly recommend listing out the things that you require and budgeting for the same, based on surplus money available. We also recommend doing proper cash flow planning, and arriving at surplus funds that you have monthly. This will help you understand your EMI paying capacity, so that you do not buy more than you can afford, and get stuck in a debt trap."

Keep a budget limit: Festivals are times when we splurge on ourselves and our families and friends without reservation. The discounts and offers make it even more tempting. If you don’t take care, you may very well spiral into a debt. The best and surest way to avoid debt traps is by taking care that you do not go overboard with the spending. The first step to ensure that this does not happen is to make a budget and stick to it. "Take stock of how much money you have by calculating the amount left in your account after deduction for EMIs and other utility bills. Since a lot of shopping happens via credit cards, plan your credit card expenditure too based on how much credit card debt you can manage in future," says Navin Chandani, chief business development officer, Bankbazaar.

Once you have zeroed in on an amount that you can spare for your festival shopping, stick to that budget. For times that you overshoot your budget for whatever reasons, have liquid funds at hand. So, start saving up well in time so that you do not have to cut corners.

No shopping on credit: Banks, financial institutions and consumer product companies want to sell everything they have to you. But why should you buy something when you do not have the money? This is where credit comes in. Offers like zero % interest, credit cards with easy EMIs and even personal loans are different options offered, but stay away from them.

Rahul Parikh, CEO, Bajaj Capital says, "It is a common phenomenon that such tempting offers let many individuals take involuntary decisions and do impulse buying during festive seasons. To avoid such debt traps, we always advise our clients to plan their purchases in advance and invest accordingly to earn interest rather than paying huge EMI's. By opting loans through credit card, an individual ends up paying 13%-15% or even more interest on their purchase depending upon banks policies."

Let's suppose an individual gets tempted by a new age Smart TV costing between Rs 60,000 - Rs 90,000 and plans to buy it in the next festive season sale. Instead of buying it through credit card or loan and paying huge interest on it, she/he can plan to postpone his purchase, until the time he is able to accumulate the required amount through any investment. For short-term cash flow planning (including festive purchases), etc., an SIP in money market fund is a prudent option.

CONSERVATIVE CAN BE GOOD

  • List out the things you require and budget for the same, based on surplus money available. This will help you spend within budget
     
  • See how much money you have by calculating the remaining amount in account after deduction, to avoid debt trap
     
  • When you exceed your budget, have liquid funds at hand. So, start saving up well in time to avoid cutting corners
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