Your checklist before shopping

Plan your smaller purchases so that you can pay in cash instead of using a credit card

It's that time of the year when retail stores offer huge discounts on apparel, electronic gadgets and even automobiles. The power of persuasion is often so strong that most of us toss aside our carefully planned budgets and end up buying things we don't really need.

This year, banks have lowered rates on consumer durable loans, which may make these offers even more enticing. But buying too much on credit could lead to a debt trap. Given that companies are cutting salaries and jobs, it is better to spend wisely this festival season.

Most purchases today are made on credit. Either it is through credit cards or through the Equated Monthly Instalment (EMI) schemes, which most retail stores offer in a tie-up with a bank or a non-banking finance company. Ideally, credit cards should be used only in case of an emergency and loans for consumer durables should be avoided. If the credit card outstanding is not paid off in full, the interest gets added and before you know, you find yourself staring at a huge credit card bill. The interest rates on credit card outstanding can be as high as 40 per cent per annum. Then you may be forced to take a personal loan to pay off your credit card loans.

With a little bit of financial discipline you can avoid credit traps and still buy the things you need.

Plan your purchases over a period of time: While we all want gadgets that make our lives comfortable, it is better to plan the purchases over a period of time, instead of buying everything at one go. If you plan your purchases beforehand, then you can buy them using cash instead of of buying them on credit. This will not put pressure on the finances or cash flow.

Before visiting the store, discuss with your spouse and other family members. For instance, you need a laptop for home use, but are also eyeing the latest tablet. Both are available on discount, but you have money only to buy one of them. Buy only the laptop right now. It can be used by your family members as well. The tablet can wait for two months. Don't pull out your credit card, just yet.

List down your financial goals in order of priority: All of us have various goals in mind, but seldom do we put it down on paper. Due to this we don't even know how much money we need to save every month for these goals. We start thinking about it only as the goal approaches. But by this time we are left with very few choices and may be forced to compromise on our goals.

For example, if the goal is to buy a house, fix a time frame and amount. If this is not done we will not know how much to save and, therefore, will continue to spend as earlier. If we set a time frame and target amount we can examine our expenditure pattern. We can also make changes in our spending, wherever required and increase savings in order to achieve the goal within the time frame.

Not having a goal diverts us and, therefore, most of us abandon discipline and use such festival shopping offers to splurge on things which are not on the priority list. But, often, by the time we realise, it is too late. What could have been achieved earlier now gets postponed by a few years, exposing that goal to further inflation. This will demand higher investments in order to achieve it.

Don't eat into emergency money: Ensure that you maintain adequate amount of money in a separate bank account for emergency use only. If you are planning to replace your old washing machine or television, that amount too can be kept in this account.

Start putting aside some amount every month from your regular account into this contingency account. Alternatively, you can also start a recurring deposit from your salary account and on maturity, move this amount into the contingency fund.

Given the mouth-watering discounts during festival time, the temptation to splurge can be high. Unless one shows control and shops in a responsible manner, things can get out of hand.

The author is Chief Planner, Proficient Financial Planners