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Diwali shopping: Splurge a bit, but compensate with more investments

Every time you exceed the budgeted amount, invest the same sum for one of your goals

October 28, 2021 / 10:25 AM IST

The festive season is here with a bang! With COVID-19 cases falling, people are out to shop with a vengeance.  Is there a way to splurge right?

Here is a financial guide to splurging this festive season.

The spending splurge

Many end up purchasing things impulsively and may never even use those.  Before going on a shopping spree, make a splurge budget, fix a limit for non-essential purchases.  But this can be done only if you do not have too many EMIs. Those in the EMI tangle can think of spending stuff that is absolutely essential for their well-being.  It is alright to sometimes spend to feel good emotionally. But you will have to plan and make up for it in the future. This could be done by saying no to outings. Or, you can get into a spending freeze for some time. The same holds good for those exceeding the splurge budget. It is ok to overspend by 10 percent, but make it up by having no splurging periods after the festive season.

Include consumption gold in the splurge budget. It is a tradition to buy gold on Dhanteras. If you buy physical gold for regular use, it is an amount spent. However, if you buy gold as an investment, then the sovereign gold bond is a better option, and it will not be part of the splurge budget.

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For the things money can buy, there is BNPL! Should you use it for your splurges?

Buy Now Pay later (BNPL) is the latest way to purchase goods. It seems simple – you pay in 3-6 interest-free instalments for your purchases. It makes you feel like you are buying something and are paying less. In reality, you are not. People do not read the BNPL agreements and do not understand the stiff penalties and interest costs, if the EMIs are not paid on time. Stay away from BNPL. It makes you spend impulsively on stuff. You may not be able to pay back for in a timely manner. Splurge with what you have, not with what you don’t have.

The investing splurge

The investing splurge – yes, you read right!  So, you could invest in trending products, but may end up losing capital. It is akin to the spending splurge as you use money on exciting, expensive things, whose value becomes zero as soon as you use them. Investing splurge would include buying BollyCoin or Messiverse or other NFTs and investing in cryptocurrencies. These products seem to have become a part of the core portfolios for investment goals. But investors need to know that these products are unregulated. They do not really understand how they work. With NFTs, collectibles can be hard to value and the gains seen in the recent times are unlikely to sustain. And if you are attracted by the Bitcoin FD, which is touting four times better returns than normal fixed deposits, the fine print will tell you that you are actually lending your crypto assets to the platform. This is not a fixed deposit with a bank and certainly not an investment product. With no regulatory oversight, the interest payment obligation may not be fulfilled, not to mention hacking issues.

The rules for investing splurge:

-Invest up to 5 percent of your portfolio in such assets, provided you have emergency cash and are investing for other financial goals

-Be ready to lose the entire capital

-Do not use these investments for your financial goals

The planning splurge

When splurging becomes habitual, it can lead to overspending, which inevitably leads to a debt trap. How about a planning splurge for the future?

Start by making a pamper plan. Mention the absolute spends you want to have for the year. There are some splurges that are worth it, such as experiences. A good way to prioritize splurges is to think of what you love over what you like and spending money where you spend more time.

Always split the splurges over various periods. This way, you will have the satisfaction of pampering yourself all through the year. Have a tit-for-tat pact. For every splurge you do above the budgeted value, invest the same amount for one of your goals. A little bit of planning can make all the difference.

Splurge, but smartly, without losing your shirt!



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Mrin Agarwal Financial Educator, Money Mentor and Founder of Finsafe India
first published: Oct 28, 2021 10:25 am
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