'No-cost' EMIs and other money pitfalls to dodge this festive season

Copyright © HT Digital Streams Limited All rights reserved. Perhaps the most damaging financial decision during the holiday season is liquidating long-term investments to finance purchases. Summary In the excitement of Diwali, Christmas and New Year, people often focus only on the joy of the moment and forget the financial consequences of overspending. Here’s how to protect yourself from harmful financial decisions. As India lights up for the festive season, the air is thick with excitement. While the festive season is essential for cultural and emotional connection, financial exuberance often leads to severe post-celebration stress. With households poised to spend record sums this year, the temptation to indulge is great, but so are the financial pitfalls that can derail long-term financial health. The key to a stress-free celebration is to understand the traps and plan a defense. In the excitement of Diwali, Christmas and New Year, people often focus only on the joy of the moment and forget the financial consequences of overspending. January brings a series of unavoidable expenses such as school fees for the new academic year, annual insurance premiums and credit card bills for all the holiday spending. Any oversight can stretch budgets and deplete savings. The result is a stressful financial period that undermines the fresh start associated with the new year. The pressure to pay these bills can lead to loans, and delayed or missed payments. FOMO leads to overspending Festive sales on e-commerce platforms have become national events, drawing millions into a spending frenzy fueled by deep discounts and digital convenience. With urban shoppers flocking to these platforms in unprecedented numbers, the boom in online shopping creates an illusion of savings that often hides overspending. The real pitfall lies in how these platforms exploit people’s urgency and fear of missing out (FOMO). Psychological pressure points are designed to encourage you to buy what you may not need, often at prices that aren’t the bargains they seem. The ‘limited-time offer’ creates an illusion of scarcity, driving rational buyers into impulsive decisions that stretch budgets beyond comfort. Sometimes even price comparisons between platforms can be misleading, as so-called ‘mark-downs’ can be from high base prices. By the end of the holiday season, many people end up owning things that add clutter rather than value, and the true cost only appears when the credit card statement comes at the end of the month. Hidden costs of ‘buy now, pay later’ Big-ticket purchases are easier to bear when split into equal monthly installments (EMIs). No-cost and low-cost EMI schemes now cover everything from gadgets to home appliances. However, this convenience makes it easier to overspend and includes hidden costs. What starts as a manageable ₹2,000 monthly payment for a smartphone quickly turns into an overwhelming debt when combined with EMIs for a laptop, washing machine and other items bought during the same festive rush. Although marketed as ‘no-cost’, these schemes often involve hidden costs such as processing fees, GST and the loss of upfront discounts, which quietly increase the total cost. EMIs numb the immediate pain of payment, making expensive purchases feel routine. However, the burden remains long after the celebrations have faded, limiting your future financial flexibility. Never Liquidate Investments to Go Shopping Perhaps the most damaging financial decision during the festive season is liquidating long-term investments to finance short-term celebrations or purchases. Every year many individuals pay out equity funds, shares or fixed deposits for this. Paying out early destroys the compounding effect that builds wealth over time. The opportunity cost of selling an investment that could have grown by 12% annually to buy items that depreciate immediately represents a double loss: the money you spend now, plus the future returns you sacrifice. This shift from ‘accumulating’ to ‘spending’ often results in a tax penalty. For example, equity investments held for less than a year attract 20% short-term capital gains tax, plus surcharge and cess. How to avoid these pitfalls Set a spending limit: Decide your total festival budget before sales start and divide it by category such as gifts, food, clothing, electronics. Track each expense to stay within limits. Wait before making big purchases: For any non-essential item above ₹10,000-15,000 wait 30 days before making a decision. The urge to buy often passes, saving you from impulse purchases. Keep EMIs in check: Limit combined EMI liabilities to 25% of your net income. Before you commit, ask yourself: would I buy it if I had to pay the full amount today? If not, walk away. Protect your investments: Never liquidate long-term assets for festive shopping. Instead, build a separate festival fund through small monthly savings throughout the year. Focus on experiences: Direct your energy towards relationships and meaningful moments rather than expensive material purchases. The joy of festivals comes from togetherness, not price tags. Know your growth goal: Every financial goal, such as buying a home, financing education or securing your retirement, requires that your investments grow at a specific minimum rate. Festive overspending not only drains money today, it forces you to earn higher returns tomorrow to make up for lost time and compounding. Understanding the growth rate your goals require helps you understand the true future cost of spending today. The smartest families use festivals to strengthen their financial foundation, not weaken it. Automate your savings, review your insurance and divert bonuses to SIPs or recurring deposits. This season, celebrate wholeheartedly, but let financial wisdom guide your choices. Ashish Khetan is a founder at Serenity Wealth, and Tanya Singh is a founding member. Get all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download the Mint News app to get daily market updates. more topics #festival Read Next Story