Financial lessons to be learnt from the festival of Diwali

First of all, let me wish all the readers a very happy Diwali and a prosperous new year. Diwali, by far is the most celebrated & equally awaited Indian festival where Indians families plans everything right from buying cloths, TV, Fridge, Vehicles etc. and also indulge in lots of spending to decorate their houses or on buying gifts for their loved ones. 

We also do Laxmi Pooja to seek the blessings of the goddess of wealth for prosperity all around. But do all these things have any connection with your financial planning? Let us understand. 

1. Planning & Execution:

As mentioned above, most of the Indians don’t compromise on their spending during Diwali and also plans these expenses way ahead in advance and that too with lots of enthusiasm, more importantly we focus on it right till all the tasks gets executed. But the same level of planning, execution and intent towards one’s financial planning is often missed because of the various factors.

Lesson to be learnt:

If you imbibe the same culture of planning and focus on its successful execution towards your investments planning, then you can really avoid losing money and save handsomely for the golden years of your life apart from reaching your important financial milestones on the way.

What needs to be done?

They key is to start and the earlier the better, your timely investments can help you get the benefit of power of compounding. For example, If you invest Rs. 1 lakh today then assuming a rate of return of say 10%, this invested amount will become Rs. 6.72 lakhs after 20 years, thereby an increase of 5.72 lakhs in 20 years. But what would happen in case if you do not invest now but defer this investment and invest after 10 years, then in that case your Rs. 1 lakh investment will be invested only for 10 years and would become Rs. 2.59 lakhs. Now if you see, the same Rs. 1 lakh invested and kept for 20 years has resulted in a gain of Rs.5.72 lakhs as compared to a gain of Rs. 1.59 lakhs if it is kept only for 10 years. So a loss of total Rs. 4.13 lakhs which you are losing out due to starting late. So the key is to have the similar planning and zeal towards your finances like what you do for Diwali.  

2. The importance of Protecting your family:

When your children play with firecrackers, you always protect them and be around them to burst crackers safely to avoid any untoward incident.

Lesson to be learnt:

The same practice what we follow to protect our children while bursting crackers needs to be followed while protecting your family financially too.
 
What needs to be done?

You need to buy the right amount of life & health insurance cover. Many times, people make huge mistake of not having the sufficient protection due to the varied reasons as follows:
 

• They end up buying the wrong policy without understanding its terms and conditions and a policy which is less on cover and more on premium. 
• The wrong timing like for buying a life cover, one need to buy it when they are in their accumulation phase say between 24 to 45 years of age and not afterwards, your need to protect your family is very high when you are still accumulating and generating wealth.
• Similarly, for buying your medical insurance policy should be worked out based on the coverage you are getting along with various dos and don’ts which comes with the health policy like covering preexisting illness or not.

 3. Plan your investments based on your Goals:

During Diwali, you buy gifts for your friends and relatives based on their taste or age group so likewise your investments is supposed to be done based on your many financial goals. You need to categories your goals like buying a house, childrens’ education and their marriage planning in future or buying a car or planning for a foreign vacation.

Lesson to be learnt:

Every financial goal of yours will carry a certain timeline and the money you need to invest to achieve the same, it is going to impact your monthly cash flow. You need to plan all your financial decisions based on all your financial Goals to make sure to have the funds available as and when you need it.

What needs to be done?

Treat Diwali as one of that event which helps you to start planning and categorizing your goals and implanting ways to achieve those. If you have already planned for it, then it is a best time to review so do not stop this process ever as it is a constant evolving process due to a dynamic world we all are living in, where we not have control over our income and expenses. 

4. Bring Diversification in your investments:

You buy various kinds of sweets, crackers,, decorative materials and clothes on the occasion of Diwali so likewise you need to bring diversity in your investment portfolio too.

Lesson to be learnt:

The way you plan your Diwali celebrations and celebrate by making sure to have variety all around, similarly you need to make sure that you have the right amount of mix in your investments products as well.

What needs to be done?

You need to categories your goals as seen in the third point and then you need to buy different financial products suiting your needs and to help you achieve these goals. The idea is to have a right mix of different products and allocation in to FDs, PPF, PF, Mutual funds, SIPs, Equity or a real estate, this will make sure that your risk is reduced considerably and is in alignment with your risk appetite.