The festive season is here. And it is raining discounts and offers. With the competition in the online space heating up, sales and discounts are now a year-round phenomenon. However, the little I have observed, the e-tailers get more generous during the festive season (from the start of Navratri until the end of the year). The deals seem more attractive, and the discounts seem bigger.
And during this season, you don’t get discounts or offers just on online purchases, even physical stores offer all kinds of discounts. You get better discounts on garments, phones, laptops, books and even cars and homes. Better exchange offers. Better loan offers. Better deals from credit cards.
Therefore, if you have been putting off a purchase for a few months due to budget constraints, now may be the right time. Not saying that the purchase will fit in the budget now, but with the discount and deal, you might figure out a way.
What Does the Rational “You” Tell You?
The rational part of you would ask you NOT to splurge. It is not easy to take your attention away from those eye-popping offers. Moreover, given your shopping patterns, you will be shown one deal after another that may interest you. They will follow you on social media and emails too. Therefore, if you let loose, you might end up spending too much. And then feel bad about it next month when the payments come due. Fair point.
However, there is a problem with this cold rational approach. The spreadsheets can analyze your cash flows and the loan interest rates and figure out the affordability. However, it can never model the pleasure or enjoyment you or your family will derive from the purchase or experience. The spreadsheet analysis cannot price in these intangible aspects.
Let’s consider an example.
After making the investments for all the goals, you still have an excess Rs 10K per month. You want to set aside this money to purchase an expensive smart TV, home theatre system, smart speakers and associated accessories. This will cost you Rs 1.2 lacs. You can’t shell out this money upfront. Whether you must spend so much money on this purchase/experience is beside the point. You are clear that you want to purchase this. And no one can stand in judgement. The purchase will happen. The question mark is only about the timing. At the rate of Rs 10K per month, you can save this money in the next 12 months. You can purchase this item after 10 months. And for those who hate credit cards or any kind of debt, this is the recommended approach.
Or you can buy these items on credit. And repay the loan over the next 12 months. Yes, you may end up paying more than Rs 1.2 lacs for the purchase. Since you can shell out only Rs 10,000 per month, it will take you 13 months to repay this loan (at 13% p.a.). So, you pay Rs 10,000 extra if you buy on credit.
The rational “you” will tell you to NOT buy on credit because it is difficult to earn 13% p.a. from the investments.
However, have you priced in the pleasure/enjoyment that this purchase will give over the next 12 months? Is it worth more than Rs. 10,000? I don’t know. Only you can answer.
The pandemic was not too unkind to my family. However, there are people in my circle who left too soon. This suggests that delaying gratification too much may not be a wise idea. Money is not an end into itself. It is merely a means to an end.
And the Deals Might Reduce This Gap for You
We saw above that you have to pay Rs 10,000 more if you want to enjoy/experience now (and not 12 months later). What if the deals during the festive season brought the difference down to Rs 5,000? Does that change your decision? In fact, the difference might go to zero or even go negative. Let’s say, after the discounts and credit card EMI (no-cost or interest based), you have to pay just Rs 9,500 per month for the next 12 months. In this case, even the rational “you” would like the deal unless you dislike or hate buying things on credit.
I have used the TV and entertainment items as an example here. You can extend this argument to anything including a car or a vacation.
Don’t Reach the Wrong Conclusion Here
Don’t use my opinion to justify a purchase of Rs 10 lacs, which you know will put your cash flows under immense pressure. Similarly, delaying gratification is not a bad thing per se and can help secure your long-term financial wellbeing. We also know instant gratification is a reason behind the debt woes of many borrowers. Just that excess of anything can be bad. And the same applies to delaying gratification. Therefore, exercise discretion.
Moreover, I do not want to belittle the behavioural challenges here. There is a clear risk of overspending and getting into a debt problem. You must not overspend. After all, you must pay back what you have borrowed. Just that you don’t have to be cold rational with your spreadsheet analysis. Just being reasonable will do. Being reasonable will also stop you from overspending.
Additionally, these deals might have reduced the gap between what is rational and what is reasonable. Not all debt is bad.
My suggestion: Don’t be rigid and too rational. Be reasonable. What do you think?