We all spend during the year-end. But the trick is not to overspend or borrow, either from friends, or your own investment, to fund your indulgence. Maintaining balance is the key
There is something magical about the end of the calendar year. The weather becomes much more pleasant, and Indians welcome the break from the sweltering heat. But more than that are the festivities that bring the cheerfulness. It starts with Navratri, Dussehra, Diwali, Halloween, Children’s Day, Thanksgiving, Christmas and New Year. Besides the festivals, there are also weddings, and wedding anniversaries.
I don’t think any of us celebrate all of them. I certainly do not celebrate Halloween or even Thanksgiving, and never step out for new year celebrations. But that does not mean I don’t participate in the lightness in the air, or celebrate others.
All this means that money will be spent. Either on hosting home celebrations, gifting at festivals and weddings, decorating the house, buying new clothes, distributing sweets, buying jewellery, or travel.
Clearly there is the impetus to spend more during this time of the year. And while the stock market has been extremely volatile from October 2024 onwards, the last bull run made many of us wealthier than before. Our portfolios have swelled, making us feel absolutely fabulous about it. This is known as the ‘wealth effect’. It implies that individuals spend more when their wealth increases, though their income does not.
Since I quit my full-time job this year and have become a freelancer, I can honestly say that my income did not increase. But my net worth has, making me feel much richer.
Besides the obligations, feeling rich makes us more vulnerable to overspending at this time. So how do we enjoy ourselves without putting our finances in a mess?
Obligatory spending cannot be avoided. Take a family wedding for instance. And this may corner the bulk of expenses if you take into account the cost of travel for the wedding, buying new clothes, and gifting the couple.
I don’t think any of us celebrate all the festivals. But that does not mean I don’t participate in the celebrations
Can the same clothes be used for other functions? Yes, if the guest list is completely different.
If you are travelling for the wedding, can you escape for a quick break (short vacation) to a nearby location? I know someone who had to go for a family wedding from Mumbai to Mangalore, and after the wedding, they booked a homestay at a beach at Udupi.
We are most prone to overspending when the benchmark is “society”. We end up with needless comparisons. We ape the lifestyle of others without having the resources to do so, and probably don’t even have a good time in the bargain. We need to understand that other people’s idea of celebration or happiness differ very much from ours.
So, how does one stay grounded? It’s simple, just prioritise. By learning how and what to prioritise, you will know what really matters to you and your family. In fact, this will be an excellent bonding exercise with the family, and it brings loads of fun, too. Everyone will feel that their opinion has been taken into account, and everyone (regardless of age) will feel heard. Together you will decide where to spend money and where to take a step back.
I have often been ridiculed for never “celebrating” new year. On new year’s eve, I get home early, and go to bed on time, and start the new year with an early morning walk. But I certainly don’t judge others who choose to hang out with friends, or even with strangers.
It is your money and time; don’t let society’s opinions rule your life. Frankly, it is all about being focused on the right expectations. The important thing is what do your loved ones expect from you, not what others in your social circle expect you to do. What “other people will say” is none of your business. What matters is what your loved ones have to say.
Impulsive spending depends on what we need, and what we are induced to buy. The number of sales may be tempting, or the overall mood may just drive you to splurge. Be conscious of it.
Basically, rather than being reactive about your shopping habits, try to be a little proactive. So if you need shoes, go for that sale. It is a time of fun, so do not feel guilty about spending. We work hard to enjoy our money. Our money helps us create experiences and memories. So don’t be too tight-fisted.
Don’t get into credit card debt to fund your indulgences. If you are using your credit card, ensure that all payments are made when the bill is presented at the end of the billing cycle. Don’t revolve around your debt. A friend did so and gladly informed me that the interest is just 2 per cent (not realising that 2 per cent per month is a mind-boggling 24 per cent per annum). If you can’t afford it, take a step back.
It is your money and time; don’t let society’s opinions rule your life. Frankly, it is all about being focused on the right expectations
Which brings us to debt with no interest rate payment. Please refrain, as much as possible, from borrowing from family or friends. Even though there is no interest payment here, the emotional cost will be huge. It is no fun living with a constant debt hanging over your head like a sword, along with the sense of obligation to the individuals.
In case you are thinking of using your own funds, do not use the ‘emergency fund’ for expenses that cannot be categorised as emergencies. Emergencies crop up suddenly, without warning. Should you be faced with an emergency and have no funds, you will be in a soup. You will end up using your credit card or resort to borrowing.
Always keep your ‘emergency fund’ intact and untouched until extreme urgency. You never know what may happen and when.
Overspending is inevitable. Instead of fighting it, make peace with it. You may not be able to save as much during this period, which is perfectly alright. In fact, you may not save at all.
You may even dip into your savings. Do not feel guilty about it. My friend has kept a fixed deposit which matures in October to give her that extra money for this last quarter.
I found that really smart. I have some extra cash parked in my savings account which I know I will be using for my plans this December. Hence, I deliberately did not invest it. And I am not going to berate myself for it.
As long as your main equity portfolio stays invested, and you are continuing with your systematic investment plans (SIPs), there is really no need to beat yourself up.
Money is meant to be enjoyed. So enjoy it. Indulge and splurge within boundaries doing what you want. You will surely have a great time.
By Larissa Fernand, Behavioural Finance Expert