Here's how to save money for those rainy days

Savings and fixed deposits do not compete against high-yield assets, but are perfect places to park money for easy access and rainy day

Anant Dhinne (name changed upon request) was one among many who were hit hard by global financial crisis in 2008-09. In just a few hours, his work status changed from senior HR executive to unemployed.
"It was unforeseen. I could have never imagined getting laid off, but it happened. It was a very difficult time," says Dhinne, who was unemployed for more than a year. During that period, he used up his emergency fund to pay for the running expenses and later relied on his wife to pay the bills.
Dhinne was fortunate to have another earner in the family to fall back on, but how many of us have that luxury?
Building a contingency fund is, therefore, important. And what better way to do that than with the help of good old savings and fixed deposit accounts.
Know your finances better
Clarity comes through action: Let's get our basics clear here first: saving is different from an investment. Saving is a sum that is set aside and can be easily accessible for sundry expenses like a car repair, birthday party, a quick weekend getaway, et al. An investment, on the other hand, can be in assets and should not be touched until they have given desired returns or completed their intended life. Investment should be goal-based and strictly adhered to, until and unless a desperate need arises to liquidate them.
Emergency fund: Once we know the difference between investment and saving, it is easy to understand the need for an emergency fund. Emergency or a contingency fund should ideally have at least three months of running expenses. If you are still thinking or struggling to get started, we suggest taking a few minutes off whatever you are doing right now and calculate your fixed expenses on a monthly basis. Once you know the amount, you can easily plan how much to save per month to reach your goal.
Categorise your income stream: For budgeting purposes, it is useful to categorise the income that you receive every month into three types: guaranteed or fixed, variable and disposable. By doing this, you can see what proportion of your income you can easily rely upon every month, and how much is available for saving and investment.
Know the different types of accounts
Open a savings account: Many working professionals in the UAE operate current accounts; these are primarily the ones opened by employers for easy transfer of salaries. But if you continue to use it as a primary account, you are losing the benefits of accruing any interest. Therefore, we suggest opening a savings account and transferring your emergency fund to it. The benefits of doing this are manifold. The first and foremost is you can earn an interest of up to 2 per cent per annum (better than letting your money sit idle).
Prize-linked accounts: These accounts reward consistent savers for saving regularly. For instance, if you maintain Dh20,000 or above in your account on a monthly basis, you would be eligible for a draw that pays up to a million dirhams as prize money. The more you save better are your chances of winning. Abu Dhabi Islamic Bank (ADIB) and Union National Bank (UNB) are among the few banks that offer such accounts.
Fixed Deposits (FD): FD is yet another safe account where you can stash your savings for easy access when the need arises. These accounts are typically useful for meeting short-term goals. Banks typically pay 0.5 per cent to 1.75 per cent and in some cases a bit higher for periods of as little as six months to as long as a couple of years or more.
Know about latest technologies
Leverage the power of internet: In this day and age of data and virtual living, banking and financial service industry has brought banking services to our smartphones. It is important that we leverage the power of the internet and use banking apps, which offer a safe and convenient way to transact. If you are maintaining multiple accounts for better returns and goal-based savings, like suggested above, banking apps can go a long way in streamlining the information and keeping a track of all transactions.
Moreover, banks have created sophisticated platforms that create infographics to help you get a better understanding of how you are spending your money.
Download personal finance apps: Some personal finance apps are so good that you might wonder why didn't you have these when you got your first pay cheque. Of course, there is no point crying over spilled milk, you can now start managing your money better with the help of these applications. Available across platforms, these apps keep a track of your money and analyse where you have been spending your cash. You would be surprised to see how much you have spent on, say, food or clothing and how less on less learning.
Some popular apps in the region include: Wally, Spending Tracker, My budgets, and Expense.
Mint, a popular app in the US, has integrated its services with select banks. Whenever a user makes a transaction, it automatically is captured in the app and synthesises the data for analysis. However, in the UAE, we still have to feed the data manually to get the most of the apps.
Looking at the way banking is evolving in the emirates we are sure to see similar innovations happening in this space too.
Until then, be proactive and make the most of your earning years to live a financially sound and a prosperous life.
- suneeti@khaleejtimes.com