This Diwali, Be Financially Responsible!
Remember the words of Warren Buffett, “If you buy things you don’t need, you will have to sell things you need.”
Diwali, the festival of lights, is just around the corner. I remember as a child we would look forward to this season for getting new clothes, household items or taking a vacation. While the average Indian’s spending capacity has increased over the years, and we no longer have to wait for any particular occasion to buy stuff, Diwali remains the barometer to measure whether people are spending, and how much. So, business executives, commentators, and market participants closely monitor sales during this time to arrive at their reading of the Indian consumption story.
To borrow from Charles Dickens... for consumers, it is the best of times, it is the worst of times.
Hotels and travel companies promote their best packages, retail stores offer big discounts and large brands wait for the auspicious months to launch their new products. In recent years, with the advent of e-commerce, the ferocity of this sales pitch has become even bigger. Most consumer-facing companies schedule their yearly sale during this season, positioning it as a ‘shopping festival’.
Is this all bad? No. The festivities and the celebrations must not stop. The practice across cultures of exchanging gifts during festivals, is a beautiful tradition and should be continued. It is the habit of excessive shopping and buying unnecessary objects that needs to be checked.
Knowing How Much Is Too Much
‘Retail therapy’ is the habit of buying something with the purpose to alleviate one’s mood. Many psychological studies have proved this hypothesis to be correct. A June 2011 paper in the Journal of Psychology and Marketing, ‘Retail Therapy – A strategic effort to improve mood’ by researchers A Selin Atalay and Margaret Grace Melroy, says that the consumption of self-treats can be strategically motivated.
How Does This Affect Us?
- Binge buying: It is easy to get carried away under the spell of some very powerful emotions.
- The effect is temporary: The mood would be lifted only temporarily. The moment soon passes, and one gets back to the earlier state.
- After-effects of overspending: While the positive effect is temporary, the after-effects of getting carried away and spending a lot of money are longer-lasting. Shopping a lot using credit cards may lift the mood right now, but might damage personal finance for a long period.
What Should One Do?
- If festivals bring genuine discount offers, cashing on these could be a great idea. So long as the discounts apply to the things we really need. The way to maximise such opportunities is to be ready for them. As the French chemist Louis Pasteur said, “chance favours only the prepared mind.” If you are prepared when the opportunity arrives, you are lucky.
- Make a list of things you need to buy. Write this list down somewhere. Also, write down the prices of these items under normal times. While you prepare such a list, keep the options open to include comparable alternatives, too. For example, if you need to buy a television set, compare various options from among the brands available that meet your requirements. Similarly, if you need a suitcase to carry on your trips, check multiple options.
- Do not remove options that appear costly right away from this list. This would help you evaluate when the shopping festivals start. Compare the prices you wrote on your shopping list. If you get something that matches your requirement at a steep discount, act.
The key is to use discretion to separate ‘responsible buying’ from ‘impulsive buying’, and ‘necessary buying’ from ‘binge buying’.
Planning A Vacation?
One of the most common expenses that many of us incur during these weeks is a vacation. While vacations are meant for relaxing, enjoyment, and fun; controlling the urge to spend too much is equally important.
Are there cheaper ways? In most cases, advance planning could really help. First of all, the booking of travel tickets and hotel rooms (or any other staying arrangement) should ideally be done well in advance, and after careful research of the options. Decisions taken in a hurry often cost too much.
Second, when booking flight tickets in advance, look for those that can be cancelled with a minimum penalty. You never know when something unexpected may come up. You do not want to lose too much money due to the airline or travel agent’s cancellation policy. Do this even if you have to pass on the cheapest option.
A planned approach to spending is the way to guard against impulse buying. Be responsible with your money this Diwali and every Diwali. May the festival of lights bring lots of wealth and happiness in your lives.
Amit Trivedi is an author and trainer, owner of Karmayog Knowledge Academy and author of Riding The Roller Coaster, Personal Finance Lessons from the ICU, and The Whole Thing Is That Ki Bhaiya Sabse Bada Rupaiya.
The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.