How To Celebrate This Festive Season Without Falling Into A Debt Trap

Festive spending can strain a budget when gifts, travel, clothes, appliances and celebrations arrive together. The combined bill may be difficult to meet from one month’s income. Credit cards become a fallback, with repayment stretching beyond the festivities.

“Stress during the festive season is rarely budget-related—it is a timing issue. Most families realise the need to save for festivities only in October, by which time the ideal saving period would have passed in April,” says Anooshka Soham Bathwal, founder and CEO, Dhanvesttor, a Kolkata-based boutique wealth management firm.

Build A Separate Festive Fund

Shubham Gupta, CFA and co-founder, Growthvine Capital, says, “Celebrations should ideally be treated as a separate financial goal that needs to be planned well in advance.”

Families can estimate their festive spending and work backwards to decide the monthly saving required. This money may be kept in a fixed deposit or suitable debt fund, away from the account used for expenses.

“Even Rs 3,000-5,000 per month set aside over several months would mean an adequate buffer by the time of festivities,” says Bathwal. The amount should be based on a list of purchases rather than a rough estimate made shortly before Diwali.

Tax-saving commitments can be organised early. Spreading contributions to instruments such as equity-linked savings schemes (ELSS) and the National Pension System (NPS) across the year may prevent a cash squeeze during the festive months. However, money invested for retirement, children’s education or a home should not be withdrawn to pay for celebrations.

Loan Versus Breaking Investments

“Equity should not generally be sold to fund festivities, except in case of emergency, as selling disrupts compounding and can involve a huge opportunity cost,” says Gupta.

While selling an investment avoids an equated monthly instalment (EMI), it may trigger tax or an exit load and delay the financial goal. An emergency fund or the debt portion of a portfolio may be tapped for an unavoidable expense, Gupta says, but the amount should be restored within six months.

Borrowing is not always the better choice. “While the former’s cost is transparent and can be quantified in terms of interest rate, the latter’s cost is much subtler—in terms of lost growth, possibly even an exit fee and a further delay in achieving the original goal,” says Bathwal, comparing a loan with a broken investment.

If funds are still needed, Gupta says a loan against securities could be considered as a last resort. It may provide liquidity without requiring the securities to be sold and could cost less than a personal loan.

The decision should rest on the family’s monthly repayment capacity, not merely an EMI. Credit cards should be used only if the complete bill can be cleared by the due date. A lavish celebration is not necessarily reckless; waiting until the last minute to fund it often is.

FAQs

1. How can families prepare for festive expenses?
Estimate the total spending in advance and save a fixed amount every month in a fixed deposit or suitable debt fund.

2. Should long-term investments be withdrawn for celebrations?
Ideally, no. Withdrawing equity, ELSS, NPS or goal-based savings can disrupt compounding and delay retirement, education or home-purchase plans.

3. Is borrowing better than breaking an investment?
Compare the loan’s total cost with taxes, exit charges and lost investment growth. Borrow only if the monthly repayments are comfortably affordable.