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According to the latest round (September 2014) of the consumer confidence survey conducted by RBI, people are spending more than last year.
Consumer confidence, as measured by the Current Situation Index, rose by about 4.6 percentage points over the previous quarter due to an improvement in positive perception on all parameters except prices.More than three-fourths of the 5,200 respondents reported that their spending rose in comparison with the position one-year ago. The sentiment is less optimistic on future spending, but it has improved over the previous round, the survey states.
You may want to rethink your approach if you planned to increase expenditure this festival season. Most financial planners would advise getting your basic financials in order before you start swiping your cards. For instance, if you have earned a huge Diwali Bonus, start with creating a contingency fund, buying adequate life and health insurance and setting aside a sum for long-term goals before spending the bonus amount. Even if you haven’t received any bonus, it would be a good idea to take care of these issues before stepping out for bigticket purchases.
"The mood is upbeat among consumers and many are looking to spend more this festive season, particularly because they had tightened their budgets in the last couple of years. However, you should avoid the tendency of spending more only to take advantage of offers and discounts. For instance, say there are `free’ gifts to be won by spending Rs 12,000. A person who would otherwise have wanted to buy products worth Rs.10,000 will spend an additional Rs 2,000 only to be eligible for the offer," says Harshvardhan Roongta, certified financial planner and CEO, Roongta Securities.
Therefore, when you step out to shop or log on to an e-commerce website, make sure you have a list of items to be purchased ready . "Drawing up a list beforehand will help you avoid overspending. Stick to the list of products you need instead of looking up products that come with the discounts tag attached to them," adds Roongta. Moreover, if you have earned a bonus, use it to take care of basic financial planning requirements before making huge spends.The first step should be to create a contingency fund capable of managing at least six months’ expenses. You can set aside this amount in a fixed deposit or a liquid mutual fund.
Next, you need to look at other instruments to safeguard your financial health. "Don’t keep the bonus amount in your savings bank account, as it is likely to be spent. Instead, you can allocate it towards buying term and health insurance policies. You can also start investing through the SIP route," says Tanwir Alam, founder and CEO of financial planning firm Fincart. "Or put the lump sum in a liquid fund and transfer it to equity funds through systematic transfer plans." The amount can also be used to clear loans that are a drag on your finances.
For instance, personal loans and credit card outstanding -if you have funds, repay this debt even before planning your shopping this Diwali. "These are high-cost, `bad’ loans that do not fetch any tax breaks. You should look at prepaying them as soon as possible," says Alam. On other hand, don’t be in a hurry to prepay home and education loans that provide tax breaks on interest paid and the principal amount," says Alam.
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