What is probably the best part of the year is on us – the festive season; Navratri, Dussehra, which will be closely followed by Deepavali, Christmas and New Year. Unarguably the part of the year when people are the happiest… and spend, and spend and spend.
And here lies the crux – experts are unanimous that we Indians may go overboard and spend beyond what financial prudence and even need requires. Luckily, the experts provide us with a guide to ensure that our finances don’t take a hit during this period.
“Indians, like people in many other cultures, do tend to increase their spending during the festive season, and this can sometimes lead to overspending,” says Col Rakesh Goyal (Retd), Certified Financial Planner, Founder and CEO, Lets Invest Wisely.
Let’s first take a look at the offers (read discounts) on offer. While there are indeed offers on hand – there is a double-edged sword here.
Take for instance, the shopping festival from an online major which is on right now. “As with most things in life, you could make it a boon or a bane, depending on how you approach it,” says Mayank Bhatnagar, Chief Operating Officer, FinEdge.
We illustrate the differential. As a smart shopper, you could use this opportunity to buy that gizmo, car or clothes that you needed anyway, but at 20-30% cheaper.
The problem starts when you start buying things you don’t need, and that too with borrowed money.
“Set clear spending limits on yourself, and do not let your card spends exceed what you can comfortably pay back next month. Avoid piling on BNPL (buy now, pay later) loans or buying things that you don’t really need. Use these offers wisely,” advices Bhatnagar.
“Look at the Fine Print,” says Goyal. Many offers come with terms and conditions, including minimum purchase requirements, specific payment methods, and expiration dates. Always read the fine print to understand the offer's details.
If you're considering taking a festive season loan or credit card offer, be aware of the interest rates and repayment terms. Sometimes, the interest costs can offset the initial savings.
Be cautious with gift cards and vouchers. Sometimes, these have expiration dates or usage restrictions that can limit their value.
Oftentimes, your office or employers may give you a bonus. This unexpected money may be another avenue To Go Over The Top in your spending.
Experts give their take on using this windfall, though this is of course variable from person-to-person.
“One may choose to utilise the bonus to retire a high interest loan, a prudent option,” advises Bhatnagar.
Of course, there are other options like using the entire money to fund a trip during the festive season.
Yet another person may choose to boost their emergency corpus in case they are looking to switch their jobs/industry in the future.
“An investing expert can be helpful in making this decision, as it is as personal a decision as it is a financial one. As always, a balanced approach between lifestyle spending and saving/investing is advisable,” say experts.
And yes, let’s not forget that great bugbear - taxes.
“Any gift, which is given to an employee on an occasion such as Diwali or marriage is taxable for the employee," says Archit Gupta, Founder and CEO, Clear. Similar to a performance bonus, which is fully taxable, gifts which are received as awards or on occasions are taxed too.
An exemption of up to ₹5,000 is allowed to you on gifts made in cash or kind by the employer. These may be received by the employee himself or by a member of his family.
Also, there is the taxation aspect to be considered if gifts are from other sources – say family and friends.
Gifts of cash up to ₹50,000 or less are not taxable. “Do remember to aggregate all your gifts of cash in the year. If they exceed ₹50,000 the entire sum is taxable,” says Gupta.
This will be added under the head ‘Income from Other Sources’ and taxed according to your tax slab, unless you decide to return the money in the same tax year.
Material gifts exceeding ₹50,000 in value are also taxed similarly.
Gifts received from relatives are exempt from tax. What more, there is no limit on how much you can receive! Relatives have been defined in the act. Your spouse, your parents, your brother or sister (and their respective spouses), brother or sister (and their spouses) of your spouse, brother or sister of either of your parents, any of your own or your spouse’s lineal ascendant or descendant are defined as relatives.
All Gifts received on marriage are exempt from tax but those received on Diwali or your birthday are taxable. These rules are also applicable where the giver or receiver is a non-resident.
“There may not be any tax implication if you are planning to gift your children or parents money or gold or any gifts on Diwali; do keep in mind that though the receipt of a gift of fixed deposits is not taxable for your children, the interest income from such fixed deposits will be clubbed with your own income,” says Gupta.
Or if you have gifted your wife a house or an asset, income from such a gift may be taxed in your returns.
Experts give us some guidelines on what to do with the financial bounty that may come your way – this festive season.
“Embrace the 50-30-20 Rule,” says Kartik Narayan, CEO of TeamLease Services. Thus, allot 50% for essentials, 30% for festive indulgences, and reserve 20% for savings.
Look at debt reduction, prioritise clearing outstanding debts. Using your bonus to decrease liabilities not only brings peace of mind but also saves on future interest payments.
Invest Wisely. Instead of fleeting pleasures, channel some funds towards personal development or meaningful experiences. This can yield long-term personal and professional dividends.
Emergency Preparedness. Build or bolster an emergency fund. This financial cushion safeguards against unforeseen expenses, ensuring stability.
Another minefield that the consumer has to be very cautious about is credit cards. Credit card companies often come up with lower interest loans or even interest free (short term loans) during the festive season. “These are really best avoided,” emphasises Bhatnagar.
Credit card debt is the most dangerous kind, and borrowers often end up over-reaching beyond their comfortable paying capacity. This can cause a lot of stress and also bring down your credit score if you aren’t careful.
And yes, your credit rating agency does not go on holiday, during the holiday season!
An EMI default is an EMI default, irrespective of the time of year! This is all the more reason why one should use credit responsibly during this time of the year.
“Ultimately, the festive season should be a time of happiness and togetherness, not financial stress. By being mindful of your spending and making responsible financial decisions, you can fully enjoy the celebrations without putting your long-term financial well-being at risk,” ends Goyal.
How Indians spend and overspend during the festive season
Gift giving: During festivals like Diwali, Christmas, and Eid, gift-giving is a common tradition. People often feel the need to buy gifts for family and friends, and this can lead to overspending, especially if they purchase expensive items or feel pressured to give more than they can afford.
New clothes and accessories: It is customary for many Indians to buy new clothes and accessories for themselves and their family members during festivals. These purchases can be quite significant and may not always fit within one's budget.
Home decor and renovation: Many people undertake home renovation or redecoration projects before the festive season to make their homes look beautiful and welcoming for guests. These projects can be expensive and lead to overspending.
Feasting and food: Preparing elaborate festive meals and hosting gatherings can also be costly. People may buy expensive ingredients and host extravagant feasts that strain their budgets.
Travel: Festive seasons often involve travelling to visit family and friends. Travel expenses, including transportation, accommodation, and dining out, can contribute to overspending.
Consumer electronics and appliances: Some people take advantage of festival sales to purchase consumer electronics and appliances. While these sales can offer good deals, impulsive purchases can result in overspending.
Jewellery: Festivals like Diwali are considered auspicious times to buy gold and jewellery. Many people invest in these items during the festive season, which can be a significant expense.
Taking loans: In some cases, people may resort to taking loans or using credit cards to finance their festive season expenses. This can lead to long-term financial challenges if not managed properly – Col Rakesh Goyal.
Financial tips to navigate the festive season
Budget wisely: Create a clear and realistic budget for your festive season spending. This should include all your planned expenses, such as gifts, decorations, travel, and feasts. Stick to your budget to avoid overspending.
Avoid debt: While taking advantage of offers and discounts is great, be cautious about using credit cards or loans to finance your festive season expenses. Accumulating debt can lead to financial stress in the future.
Plan early: Plan for the festive season well in advance. Start saving for it throughout the year so that you can enjoy the celebrations without straining your finances.
Focus on value, not just price: When making purchases, consider the value of what you're buying. Sometimes, spending a little more on quality items can be a better long-term investment than opting for the cheapest option.
Prioritise experiences: Consider prioritising experiences and quality time with loved ones over material possessions. Meaningful interactions and memories can be more valuable than expensive gifts.
Review your financial goals: The festive season is a good time to revisit your financial goals and ensure that your spending aligns with your priorities. Don't lose sight of your long-term financial well-being.
Avoid impulsive buying: Avoid making impulsive purchases. Take your time to research and compare options before making a decision.
Give thoughtfully: When giving gifts, focus on thoughtful and meaningful gestures. The value of a gift often lies in the sentiment behind it, not its price tag.
Practice gratitude: Remember the essence of the festival – gratitude, sharing, and celebrating with loved ones. These aspects can bring more joy than extravagant spending – Col Rakesh Goyal.
Manik Kumar Malakar is a personal finance writer.
