Light Up Your Life: 6 Financial Lessons From Diwali

Let’s take a look.

• Planning in advance :- Diwali is one of the most-awaited festivals in India. People start planning their Diwali spending — renovation, gifts, and clothing — well in advance to be able to get the best or exclusive products and services. Similarly, if you invest early, you can generate better returns. For example, an investment of Rs 5 lakh today in an instrument offering 8% returns will fetch you close to Rs 11 lakhs after 10 years. Whereas the same amount invested 5 years later at the same rate will give you 40% less (approx.) i.e; Rs 7.4 lakhs. By investing early, you can also benefit from the power of compounding. So, don’t just plan in advance for Diwali but also your investments.

• Goal based-investment :- On Diwali, gifts are bought for family members and friends as per their age and personal preferences. You wouldn’t gift a Barbie to an 18-year old girl, right? Similarly, set distinct goals for every stage of your life, such as children’s education, buying a retirement plans, house and invest accordingly. Every goal in life impacts your personal cash flow, which is why goal-based investments help you sail through without putting extra burden.

• Clean up your investment portfolio yearly :- Before Diwali, people clean their houses and give away stuff that is no longer required. Apply that same cleaning approach to your investments. Every year, check your investment portfolio thoroughly to ensure that it is in line with your immediate goals and unforeseen expenses. Suppose, you now intend to buy a car, do you have the funds for it or will you have to pull out cash from your investments? Also, while cleaning up, see which of your investment schemes have not been performing well and exit from them.

• Play safe :- While bursting crackers, you need to be extra cautious to avoid any fire hazards. You don’t let young children to burst crackers without adult supervision simply because if something untoward were to happen you or the adult will come to rescue.  Similarly, before investing in schemes you do not fully understand, it’s better to consult a financial advisor. Also, create a detailed financial plan to avoid any surprises later. Blindly investing in lucrative schemes that look too attractive to be true may turn out to be a financial disaster. Therefore, park your money in a trusted investment option only after weighing its pros and cons.

• Variety is rewarding :- Diwali is all about adding variety to your celebrations with crackers, clothes and sweets. Similarly, a proper diversification in your portfolio helps you enjoy benefits offered by various financial instruments. A balanced portfolio will bring most joy as you will be able to benefit from investments in both equities and debt that offer varying levels of risk.

• Be prepared for an emergency :- Ensure your fire extinguishers are ready to avoid accidents that may happen during cracker bursting. Similarly, while planning your investment, it is important to have sufficient insurance cover to deal with uncertainties of life. The benefits of insurance help the policyholder in combating losses associated with emergencies in life. Here, health and life insurance plans will act as your fire extinguishers.

Wishing you a safe and financially sound Diwali!