Brighten Up Your Financial Future as You Illuminate Diyas This Diwali

Diwali is also recognised as the time of year when people spend a lot of money; the tradition of gifting presents and cash are also the highlights of the festival. One of the things that many of us look forward to during the festival season is the bonus. Some organisations/employers, as a gesture of goodwill, offer a Diwali bonus to their employees. These monetary gifts and bonuses give the recipients strength and delight in their hearts. Some people overspend or use their entire bonus to satisfy lone materialistic desires, but if it is invested prudently, it can boost your financial goals to a great extent.

On the other hand, you would agree that the current market conditions are unsettling due to the slowdown in the economy, geopolitical unrest, inflation that is out of control, rising interest rates, and according to a World Bank report several indicators point to a potential global recession in 2023. It will be a prudent idea to look at ways and ensure to lead a financially secure future this Diwali, given the current headwinds in play.

This Diwali, when you receive a bonus and/or cash presents, instead of spending it on fleeting materialistic wants, save a meaningful portion of it and invest it prudently in wealth-creating investment avenues such as mutual funds to brighten your financial future. You may subscribe to the idea of practising delayed gratification as it will serve in the interest of your long-term financial well-being.

With everything lightening up on Diwali, why should finances be behind? You only need to take a few simple measures to manage your money well; this Diwali, think of lighting each diya as an action you may take to ensure your financial well-being. So, how can you do it? Let’s find out.

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Here are 5 things you should do to brighten up your financial future this Diwali:

1. Invest Your Money Wisely

The bonus money received by you lying idle is no good for you. You need to invest it to grow and make it work for you. Depending on your suitability, you can choose to invest in fixed-return and market-linked products. It's advisable to distribute your money between the two for optimum results. For fixed income, you can choose fixed deposits, bonds, etc.

On the other hand, for market-linked products, you can bank on mutual funds that have the potential to generate inflation-beating returns in the long run. Also, note that when you invest in market-linked products, staying invested for the long haul is essential for earning decent returns. You may opt for best mutual funds; as you can see, markets are highly volatile, and you must ensure your risk appetite, investment objectives, and horizon before investing.

This Diwali, as you plan gifts for your loved ones, start investing towards your S.M.A.R.T financial goals as well. This enables you to ensure that you have adequate funds for your envisioned goals when the time arrives. Equity mutual funds have the potential to fetch you good returns in the long run and are ideal wealth-creation instruments. You can start with a Systematic Investment Plan (SIP) in an equity mutual fund; even a modest SIP of Rs. 500 or Rs 1,000 in a worthy scheme can result in decent returns over time, thanks to the power of compounding. This is a better way to utilise your festive income and brighten your financial future.

2. Debt Management

Not all debts are bad. Debt allows people to buy items they couldn't have otherwise been able to afford. However, sometimes debt repayment may become a problem; debts to satiate lifestyle needs can push you towards a debt trap. During Diwali, many of you plan to purchase gadgets like new smartphones, digital appliances, etc., with the help of consumer loans and EMI options. These loans carry a high interest rate that subsequently pushes up EMIs. This puts pressure on your finances, and any default hurts your credit score. This also acts as a roadblock when you apply for loans in the future.

Consider paying off outstanding loans with your bonus, especially those with high interest rates like credit card debt or personal loans, in order to reduce your debt burden. Therefore, utilise the bonus earned to prepay your loans - partially or in full. By doing this, you will save on a lot of interest payments and improve your credit score. Remember, if you reduce debts wisely, you will be able to save and invest the money saved to secure your financial future.

In addition, whilst memories of gift buying, food preparation and all the expenses associated with Diwali are front of your mind, it's worth considering keeping your credit card spending under control. Ensure your debt-to-income ratio is under 40% and that you have the financial means to make timely loan and credit card payments.

3. Create an Emergency Fund

During Diwali, fire extinguishers are kept handy to prevent possible accidents from firecrackers to be burnt. Similarly, you need to have an emergency fund in order to avoid any financial crises and survive during unexpected emergencies like a pandemic, a job loss, a natural disaster, etc. Your emergency fund will serve as a safety net for you in times of need, preserving your financial stability and providing you peace of mind.

If you already have set up an emergency fund, you may add the bonus amount to boost up your emergency fund. It will have enough corpus to serve you in turbulent times. However, if you have not maintained an emergency fund, you may start building one this Diwali by deploying a certain amount from your bonus. Ideally, your emergency fund may hold expenses for 12-24 months, including your loan EMIs. You may consider investing in liquid mutual funds as an emergency fund as it would offer you slightly better returns than your savings bank account.

4. Purchase an Adequate Insurance Cover

Each of us is driven by a common goal, providing a safe and secure future for our loved ones. You can use your festive bonus or the amount of cash gifts to purchase an insurance cover for life and health. It will assist you against the increasing medical expenses and provide you with a cover to survive the tough times. With increasing uncertainty in life, having an insurance cover is essential as it protects you from sudden expenses in challenging times.

Now is the time if you have not purchased a life and health insurance policy. Life insurance is meant to protect and provide for the family members in case of the untimely death of the earning member of the family, whereas a health insurance cover can assists you during highly expensive medical treatments. You have to ensure the terms and conditions of the insurance plan before purchasing for easy access to claims. This is one way to brighten up your financial future and financial-well-being of your loved ones.

5. Invest in Your Retirement Planning

Have you started making plans for your retirement? If not, you should give that some thought. One aspect that must be considered meticulously and as early as possible is retirement planning. After retirement, when your monthly income is dependent primarily on what you save today, it is important that you must plan it well from now so that you don't face any cash inflow issues in your golden years.

Instead of depending on someone else for your retirement, build a retirement corpus for yourself as soon as you get the opportunity. Use your Diwali bonus to invest in a National Pension Scheme or increase your contribution to your Public Provident Fund. You may also consider retirement planning by investing in worthy mutual funds, as they will help you generate inflation-beating returns over the long term. The sooner you start saving towards your retirement, the more you can leverage the power of compounding and make your money work for you.

Thus, the best way to use your bonus is to invest it in various opportunities that will help you protect your financial future. On the auspicious Muhurat of Dhanteras (the first day of Diwali), invest strategically between 10%-15% of your portfolio in Gold ETFs or Gold savings funds with gold exchange-traded funds (ETFs) or very long-term perspective to usher in prosperity. Historically, Gold has proven appealing and performed well in the long run. During times of economic uncertainty and financial crises, the priceless yellow metal will serve as a hedge, a valuable store of value, and an efficient portfolio diversifier.

To conclude...

Diwali is a blissful festival that brings joy and new beginnings. However, to better understand the above-mentioned steps to make wise use of your Diwali bonus, you need to be financially literate.

This Diwali, you should also emphasise on improving your financial literacy and consider investing in yourself rather than splurging on your immediate needs, such as a Smart TV, a mobile device, a laptop, or designer clothing, etc. This Diwali, begin your journey to enhance your financial knowledge, which will help you brighten up your financial future.

Additionally, you may consider using a portion of your bonus or cash gifts to purchase financial books or enrol on an online e-course that can guide you towards improving your money management skills and explain the nitty gritty of financial planning. Being financially literate will assist you in maintaining your financial well-being, and you may help your family to take informed financial decisions by becoming their financial guardian.

Therefore, this Diwali, take a pledge to utilise your bonuses and/or monetary presents more thoughtfully. Amidst the gloom of uncertainty, Illuminate the diya of wisdom to overcome the difficult times and ensure your and your family's bright financial future.

Wishing a happy, bright, and prosperous Diwali to you all!

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So, if you wish to brighten up your financial future this Diwali, you must enrol for the "Certified Family Guardian" programme today!

Warm Regards,
Mitali Dhoke
Research Analyst