How to enjoy Diwali without giving your savings a hangover

The festive season traditionally brings the highest consumer spending among Indian households. A recent report by YouGov and Rukam Capital found that 60% of Gen Z shoppers increase their spending during major festivals, with 25% spending significantly more and 35% somewhat more.

But the world around us is changing. News of layoffs in the IT sector, muted salary hikes and inflation inching up again warrant a closer look at how households spend and splurge. We spoke to individuals to gauge the mood and to experts on how households should respond.

Why people splurge

Diwali is usually when families want to celebrate, buy something new and gift friends and relatives. The festive spirit makes spending part of the occasion. Preeti Zende, a Sebi-registered investment adviser and founder of Apanadhan Financial Services, said people also tend to spend impulsively because of the fear of missing out (FOMO) fuelled by social media influencers.

Many people also have extra money in hand through bonuses or variable pay, which can tempt them to treat it as “free money” for celebrations, said Arindam Banerjee, professor and programme director of the Masters of Applied Finance & Wealth Management at SP Jain School of Global Management.

The market is designed to reinforce this mood. Retailers, banks and digital platforms all target consumers with offers during this period, lowering their resistance to spending. “Cashback, no-cost EMIs, limited-time deals and social pressure all arrive together,” Banerjee said. In a normal year, he added, this may be manageable for a household with a stable income. But this year, households may need to tread more carefully.

What’s different this time

In fact, many households have already begun exercising financial prudence. According to Sachin Taparia, founder and CEO of LocalCircles, urban households are likely to spend an average of ₹20,000 this festive season, down from around ₹45,000 last year. They are scaling back mainly on big-ticket purchases, with no tax tailwind comparable to last year's GST cuts and credit becoming costlier after the RBI's 7 October rate hike.

In its latest survey, LocalCircles found that 31% of the 22,904 respondents had no discretionary spending planned this festive season. “People are not making big-ticket purchases as phones and appliances have become costlier, anxiety about white-collar job security is making employees hold back and small business owners are also facing competition from quick commerce giants,” Taparia said.

The steady stream of layoff announcements in the IT sector is adding to the uncertainty. US-based AI firm Innodata abruptly fired nearly 550 Indian employees on Monday, while Microsoft extended a massive global Voluntary Exit Offer (VEO) to its 23,000-strong Indian workforce, with a 1 December deadline. Oracle has downsized about 10% of its local team, or roughly 3,000 employees, in its latest engineering-heavy job cuts. Reports indicate that it may extend a Voluntary Separation Programme (VSP) to remaining Indian managerial roles as it builds out massive AI data centre infrastructure.

Banerjee explained that when an IT professional loses a job, the financial shock extends well beyond the individual. Many households have a home loan, a car EMI, school fees and often parents in another city to support. A mid-level professional who loses a job may also take longer to find an equivalent role than during previous downturns. Households should therefore plan for a longer period without income rather than assume a quick recovery, he said.

That is exactly what Savrat Vaish, a Delhi-based sales manager, is planning to do. He intends to put most of his Diwali bonus into savings and is also cutting down on midnight food orders and designer clothes. “I want to enjoy Diwali, but also maintain financial discipline amid the uncertainty,” he said.

Saurabh Singh, an assistant finance manager, is also cutting out unnecessary expenses. He plans to avoid excess spending because he has several expenses lined up for which he has been saving through mutual funds from an early age. Even while redeeming his mutual funds, he has decided to not use the entire funds but deploy a portion of it along with his Diwali bonus back into investments when the timing is right.

Spend without the hangover

Even as LocalCircles' survey points to lower spending this season, a large section of households will still fund festive purchases, to varying degrees, from their savings. In the survey, 83% of the 23,451 respondents said they planned to dip into savings to some extent, while 16% said they would rely entirely on savings to fund their spending. That is a worrying sign.

For those considering dipping into savings, Taparia poses an important question: “How many more festivals can you celebrate from savings unless your earnings increase?”

Using savings to fund festivities can leave household finances nursing a hangover long after the celebrations are over. According to Banerjee, savings act as insurance against income loss. Using them for discretionary purchases now means entering what could be a difficult few months with a thinner financial cushion. “If celebrations must be funded, use the monthly surplus and leave the reserve alone,” he said.

But households should be careful not only about dipping into savings. Purchases financed through credit offers such as no-cost EMIs also need scrutiny. EMIs and festive financing can make a ₹1.2 lakh television feel like a ₹10,000-a-month decision. “The problem is that the EMI lasts long after the festival and if your income stops in month three of a twelve-month plan, you are left with nine payments and no salary,” Banerjee said.

Anurag Mehra, director of Expert Panel, a debt resolution and loan management platform, said aspirational consumers looking to upgrade often take loans during the festive season, particularly when they have limited savings and are drawn to advertised no-cost EMIs or e-commerce sales. “Consumers should therefore assess the total cost of borrowing, their existing EMI commitments and their repayment capacity before taking a festive-season loan,” he said.

Banerjee recommends a simple discipline: set a fixed festive budget in cash or a separate account, wait 48 hours before making any purchase above a predetermined amount, and pay upfront wherever possible.

Families dependent on the IT sector that receive a festive bonus or variable pay this year should put 70% directly into a liquid emergency fund and reserve 30% for gifts, sweets and celebrations. “That way the family still celebrates, and most of the windfall goes toward protecting against a possible income gap next year,” he said.

Zende advises households to plan well in advance and start shopping a few months before the festival. This spreads expenses over time and reduces the temptation to buy impulsively out of FOMO. Festivals come around frequently, she said, and overspending on one occasion can make the following months harder.

If a deal or offer is too good to pass up, she said it is acceptable to tap the emergency fund, provided households have the discipline to replenish it in the next quarter. She also cautions against pausing investments and recommends that at least a third of the Diwali bonus should go towards topping up existing investments.

None of this means having a joyless Diwali. It is about enjoying the season while staying mindful of the financial realities of the moment. This year, the best buy may be a bigger financial cushion for the future.