While Deepavali is popularly known as the “festival of lights”, the most significant spiritual meaning is “the awareness of the inner light”. Central to Hindu philosophy (primarily the Yoga, Vedanta, and Samkhya schools of Hindu philosophy) is the belief that there is something beyond the physical body and mind which is pure, infinite, and eternal, called the Atman. The celebration of Deepavali as the “victory of good over evil”, refers to the light of higher knowledge dispelling of all ignorance, the ignorance that masks one’s true nature, not as the body, but as the unchanging, infinite, immanent and transcendent reality. With this awakening comes compassion and the awareness of the oneness of all things (higher knowledge). This brings Ananda (joy or peace). Just as we celebrate the birth of our physical being, Deepavali is the celebration of this Inner Light.

While the story behind Deepavali and the manner of celebration varies from region to region (festive fireworks, worship, lights, sharing of sweets), the essence is the same – to rejoice in the Inner Light (Atman) or the underlying Reality of all things (Brahman).

(also added the above section to Wikipedia entry “Deepavali – Spiritual Significance“, 22-Oct-2006)

Deepavali would be an excellent time to sit and meditate, reflect, study your thoughts and emotions. After all, the “deepa” in Deepavali, is about the light of jnana (higher knowledge, wisdom, clarity of thought) dispelling ignorance. That is, everything that arises out of false-identification of oneself with the body, thoughts, and emotions. Or conversely it is about the light of the Atman which begins to shine through when one takes effort to make steady the mind.

Just as a lamp does not flicker in a windless room, so also the mind of a yogi.
Just as a tortoise withdraws its limbs, so also the yogi withdraws his senses from sense-objects.
Never does your practice go to waste, even the smallest effort takes you far.
– Quotes from the Bhagavad Gita (slightly paraphrased)

Yoga (not just asanas or physical yoga), is any practice enabling it’s main goal: “union with God/Atman/The Source”. It gives clarity of thought, which leads to wisdom, which leads to happiness and compassion.

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