Diwali bonus: Spend wisely, invest smart for a brighter future

Overspending is a perennial risk during festivals. Do not treat the bonus as 'extra' money and blow it all.

As Diwali approaches, many of us eagerly await the festive bonus, which offers a chance to make teh celebrations brighter, pay off debts or invest in our future.

Here are some strategies for ensure that your Diwali bonus continues to bring joy for years to come.

Smart allocation: Striking the right balance

Effective allocation begins with a simple framework that divides the bonus between immediate celebrations and future financial well-being.

Atul Shinghal, founder and CEO, Scripbox, recommends dedicating 50 percent of the bonus to festive and lifestyle spends and the remaining 50 percent toward long-term goals such as mutual funds, retirement, or debt repayment. For families with higher obligations, a three-box formula (30 percent for needs, 30 percent for wants and 40 percent for wealth) allows even finer balancing.

There is no one-size-fits-all approach. Personalisation is key to optimising these ratios. Nehal Mota, co-founder and CEO of Finnovate, said, "Align it with your life stage. If you carry high-interest debt, direct 60–70 percent of your bonus to repayment."

For those with stable finances, leaning toward more flexible splits, ensures obligations are funded first before discretionary spending.

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Budgeting for celebrations

Setting a realistic budget prevents festive cheer from turning into financial regret. "Start by estimating expected festive expenses — gifts, outings, décor, travel, and religious rituals,” Shinghal said.  Compare it total with your bonus and regular disposable income. This helps assign a fixed cap for celebrations, automating investments beforehand to prioritise goals.

Dodging common traps and celebrating sustainably

Overspending is a perennial risk during festivals. Do not treat the bonus as "extra'"money and blow it all, Mota said. Don't fund festive celebrations through credit cards or personal loan schemes, especially when you shop. Credit cards and personal loans have high interest rates and are a debt trap.

To celebrate without debt, creative alternatives abound. "Celebrate wisely with potluck gatherings, do-it-yourself décor, or early-bird travel deals," Mota said.

Prepare a shopping wish list in advance and stick to it, Shinghal said. It’s important to compare prices online with multiple e-commerce websites and offline at retail stores, make use of discount and cashback offers.

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Pay-off high interest debt

Directing a portion of your bonus to settle credit card dues, personal loans, or any liabilities with double-digit interest rates delivers instant savings by reducing future outflows. “Make a list of debts in order of interest cost, and tackle the highest ones first. Even partial prepayments can shorten loan tenure and reduce total interest paid,” Shinghal said. Prioritise this step before exploring new investments, especially if carrying expensive debt.

Investment strategy

On the investment front, options vary by horizon. Mota said, "For short-term goals (under 3 years), stick to liquid funds or recurring deposits. For medium to long-term invest in diversified equity mutual funds or index funds." Consider adding Sovereign Gold Bonds or Gold ETFs to your portfolio for diversification benefits.

The key is finding a balance between returns and liquidity, avoiding investments that might put your short-term capital at risk.

A lasting approach to financial fitness

Festive bonus is a chance to accelerate progress. "A festive bonus can either vanish in a week of shopping or quietly work for you years ahead. The choice lies in treating it not as a windfall, but as an accelerator of your financial fitness," Mota said.

"Involve family members in the allocation exercise so everyone understands the balance between festive spending for enjoyment and discipline," Shinghal said.