It’s not the best time to splurge. But the offers are too tempting. With the festival season starting, it is hard to ignore the Rs 78,000 less offer on a Fiat car or Rs 10,000 off on an LED television.
There is peer pressure as well. With colleagues, family members, neighbours, children ... all buying a whole lot of new gadgets, it is quite difficult to resist the temptation. But, hold on to your horses.
Two things drive this need to spend. One, it is the festival season. So, everyone wants new clothes, personal accessories, phones and even televisions and cars. Two, the discounts are being offered by retailers looks like a steal.
In the rush to take advantage of these deals, it’s quite common to overshoot one’s budget and even buy things that may not be needed. Take Harish Roy who had visited a local mall to buy new clothes as part of his routine festival shopping. After doing his purchases, he walked in the electronics section of the mall just to take a look at the new television sets. After checking out a few models, he couldn’t resist the “only for today” offer of an LED television available on exchange for his existing television set, which was not even two years’ old and in good running condition. He left the mall exceeding his budget and buying something which he already had. On the other hand, if Harish would have planned his festival expenses beforehand he would not have spent the additional Rs 20,000 which he spent on the television.
Today, most things are bought on impulse and due to decent bank balances; it’s very easy to buy something expensive even when a similar product having the same utility may be available for a lower price. As long as one can afford the financial consequences of being a victim of the shopping binge, it doesn’t matter. But it may matter a lot for those who have financial responsibilities at home; EMI’s to be paid, etc. By shopping beyond their means, they can even get into serious trouble.
Take the case of Prashant Sinha, who was earning a very good salary but was able to save a fraction of his salary due to his high expenses which also included home loan EMI’s. Having gone shopping for replacing his old mobile phone, Prashant not only bought an expensive phone but also purchased the latest tablet pc which some of his office colleagues had also bought. It was easy for Prashant to purchase the gadgets since he used his credit card. The problem started when he was not able to make the payment in the following month on the due date and then a cycle of interest and penalty ensured that he had accumulated a huge credit card debt.
How do we ensure that we don’t buy things that we have like Harish or fall into the debt trap like Prashant?
- The first thing that needs to be done is a monthly budget. You know how much you earn but write down your estimated expenses for the month. Especially during festival time, write down the things that you need and estimate the cost for those things. If you cannot resist impulsive behaviour, then it’s advisable to carry budgeted cash for your purchases and leave your debit card at home, lest you fall prey to your impulsive nature.
- List down the things that you need and not necessarily want. Needs are things which you cannot do without for example a good pair of clothes, television for entertainment, etc. Wants are things which you can live without and mostly fall in the luxury category, for example you can do with a normal television set. But the latest LED giant screen television which might cost a bomb is not required. A normal television serves your purpose.
- Stagger your purchases: Don’t buy all the things in the same month especially if you intend to purchase some consumer durables, electronic items, clothes etc. You can plan your purchases in different months so that your cashflows don’t get stretched.
- Avoid excessive use of credit: Try and buy most things using either your debit card or cash. Use your credit card only if you are disciplined enough to pay in the following cycle. Make use of loans only for big purchases like car, bike, etc only after assessing your payment capability.
Following the above will ensure a celebration during this festival season.
The writer is chief planner, Proficient Financial Planners.