Lessons to Brighten Up Your Financial Future This Diwali

Beyond the vibrant celebrations, Diwali holds a deeper significance for many. It symbolises new beginnings in personal growth, relationships, or finances. Just as we cleanse our homes and make way to welcome new energy, this time of year is also perfect for a financial reset, allowing us to evaluate our spending, saving, and investment habits to ensure a brighter future.

The festive season, however, often comes with a spike in expenses. Gifts, festive attire, home renovations, and elaborate celebrations tend to bring higher spending. While it's natural to indulge a bit during Diwali, there is often a risk of overspending, which can lead to financial strain once the festivities end. With discounts and special offers everywhere, it's easy to get carried away in the spirit of celebration, sometimes forgetting the financial impact it may have on our overall goals.

[Read: This Diwali Lighten Up Your Financial Well-Being with These 5 Financial Lessons]

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Beyond the cheer and hope that Diwali brings, it also presents valuable lessons for financial planning. Many people may have received their Diwali bonuses or cash gifts; rather than spending them on temporary luxuries, consider saving a substantial portion and investing it wisely.

This is especially relevant for millennials, who can benefit greatly from adopting delayed gratification instead of indulging in impulse buys, like the latest tech gadget, a pricey iPhone, a high-end laptop, or designer attire. Choosing to save and invest over impulsive spending can make a real difference in long-term financial health.

Have you thought about how a strong financial plan could prepare you to handle unexpected financial hurdles in the future?

With today's market being unpredictable due to various macroeconomic changes, it's a good time to make smart financial moves this Diwali for lasting financial stability. Managing your money effectively is just as crucial as earning it. Diwali provides a perfect opportunity to embrace this shift and prioritise financial security for you and your family's future.

1. Financial Decluttering

Just as we meticulously clean and declutter our homes during Diwali, the same approach should apply to our finances.

• Identify Financial Clutter: Start by examining your financial portfolio. Check for investments that no longer align with your goals, such as underperforming stocks or mutual funds. Evaluate any recurring expenses that don't add value.

• Reorganise Debts: Make a list of any loans or debts. Prioritise high-interest debts, such as credit card dues, and create a plan to pay them down faster. Consider consolidating multiple small loans into one to simplify repayments.

2. Setting Financial Goals

Diwali marks a fresh start, making it an ideal time to set or revisit financial goals. These could be short-term goals like saving for a vacation or long-term objectives like retirement.

• SMART Goals: Set goals that are Specific, Measurable, Achievable, Relevant, and Time-bound. For example, if you aim to save Rs 10,000 a month towards a down payment for a home, break this down into smaller, actionable steps.

• Review and Adjust: If you already have financial goals, evaluate your progress and adjust your strategies as needed. Life changes, so it's important to keep your goals flexible and aligned to your prevailing circumstances.

[Read:  Financial Literacy: Beware of Bad Advice, Financial Frauds And Mis-selling of Investments]

3. Spend Wisely During Festivities

Diwali often brings a lot of festive expenses - gifts, decorations, and celebrations. But practising mindful spending is essential for long-term financial health.

• Power of Budgeting: Create a budget, allocate a specific amount for Diwali expenses, and try to stick to it. Track your purchases and keep an eye on your budget to prevent impulsive spending.

• Mindful Gifting: Instead of spending on lavish gifts, focus on meaningful gestures. Personalised gifts or even experiences like a family gathering can be just as special and save you money.

4. Build Emergency Fund: Prepare for the Unseen

Diwali's message of preparation and planning applies perfectly to building an emergency fund. An emergency fund acts as a safety net, providing financial security during unforeseen circumstances.

• How Much to Save: Aim to save at least 3-6 months' worth of living expenses. If you're just starting, set a smaller initial goal and work towards building it up gradually.

• Where to Keep It: Park your emergency fund in a liquid, low-risk account, such as a liquid mutual funds, so that it's accessible when you need it.

5. Invest for Wealth Creation: Diversify Like Diwali Decorations

Just as Diwali decorations come in all shapes and sizes, your investment portfolio should also have diversity.

• Explore Different Asset Classes: Include equities, fixed income, gold, and real estate in your portfolio. Diversification reduces risk by spreading your investments across various asset classes.

• SIPs for Consistent Wealth Growth: Systematic Investment Plans (SIPs) in mutual funds are a great way to consistently invest without timing the market. This Diwali, consider increasing your SIP contribution or starting a new one.

[Read: Diwali Portfolio Cleanup: Here is How You Can Prevent Mutual Fund Overlap]

6. The Value of Insurance: Protect What's Precious

Diwali celebrations are a reminder to cherish what's precious. Insurance is a financial tool that protects your assets and loved ones.

• Health and Life Insurance: Ensure you have adequate health insurance to cover medical emergencies and life insurance to protect your family in case of unforeseen events.

• Asset Insurance: Insure valuable assets like your home and car, as these are often the most significant investments you make.

7. Plan Tax-Saving Investments: Lighten Your Tax Burden

Diwali is a good time to assess your tax-saving investments and ensure you use all available options.

• Explore ELSS Funds: Equity Linked Savings Schemes (ELSS) allow you to save on taxes while investing in the equity market. ELSS funds have a three-year lock-in period and the potential for attractive returns.

• Consider Section 80C Options: Other tax-saving options under Section 80C include the Public Provident Fund (PPF), National Savings Certificate (NSC), and Employee Provident Fund (EPF). Evaluate these to ensure you're maximising your deductions.

8. Retirement Planning: Secure Your Golden Years

Diwali is a time of joy and celebration, but it's also important to plan for a secure future.

• Review Retirement Accounts: If you have a retirement fund, such as an Employee Provident Fund (EPF) or Public Provident Fund (PPF), review its progress. Assess whether you need to increase contributions to meet your retirement goals.

• Consider Long-term Investments: Apart from EPF and PPF, explore National Pension System (NPS) or long-term mutual funds to grow your retirement corpus. Compounding plays a vital role in retirement planning, so starting early is advantageous.

[Read: 9 Best Financial Gifts for Your Loved Ones This Diwali]

To conclude...

Building wealth and financial stability isn't just about making more money-it's about using what you have wisely, planning for the future, and ensuring that every financial decision brings you closer to your long-term goals. Just as Diwali celebrates new beginnings, let this be the start of a financially mindful lifestyle.

So, as you step into the year ahead, may the wisdom of this Diwali stay with you, bringing prosperity, security, and peace of mind.

Wishing You All a Very Happy Diwali!

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Hiral Bhuta is a Investment Consultant & Principal Officer. She is a seasoned professional in the financial services industry, currently serving as an Investment Advisor and Financial Planner at PersonalFN. With her expertise, she plays a pivotal role as the Principal Officer appointed under SEBI's amended IA Regulation. Hiral holds distinguished certifications such as Certified Financial Planner (CFP) and NISM XA & XB, complemented by a post-graduate degree in commerce (M. Com). Her primary areas of focus encompass financial planning, investment advisory, and wealth management, where she leverages her knowledge and skills to provide tailored solutions to clients. With a cumulative experience spanning five years, Hiral brings a wealth of expertise and insight to her role at PersonalFN, ensuring clients receive expert guidance and support in navigating their financial goals.
 

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This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.