KT For Good: Budgeting tips to help you become rich in UAE
Debt is common among the UAE residents, with more than three in five respondents having debt of some kind.
"It's not a salary that makes you rich, it's your spending habits," Charles A. Jaffe, American chess master, said once. We can't agree more on this, especially when talking about life in the UAE. The lure of tax-free salaries, better lifestyle and life in a country that is making strides across sectors tugs many expatriates to the shores here. But mismanagement of money and easy availability of loans at low interest rates have landed many in the soup.
"Debt is common among the UAE residents, with more than three in five respondents having debt of some kind, most commonly from credit cards (33 per cent) and personal loans (28 per cent). The high percentage of personal debts could be a direct result of inadequate financial knowledge, with 29 per cent of respondents indicating they do not feel well informed about lending for credit cards or loans," revealed a YouGov survey in December last year.
Kerry McLaren, Head of YouGov Omnibus, said more than a third of debt-ridden residents are oblivious to the interest rates on debts "and even more worrying, a slightly lower percentage is unaware of their level of debt overall". "This is an indicator of low financial literacy and awareness," he noted. Although the survey had a sample size of just 1,098 people, there's no denying that many residents here make financial decisions on the spur of the moment, and often get caught in a quagmire of debt with loans, credit card payments and other fixed monthly expenses.
Personal finance is a cornerstone to all decisions we make in life, yet it is one of the most underestimated ones. Impulsive spending and lack of planning are pushing many expatriates to the brink of unmanageable debt. However, saving and generating wealth are simpler than it seems.
A basic rule that could help
There is surely no one-size-fits-all solution or plan. Yet, budgeting and a little bit of financial discipline go a long way in creating a comfortable financial life. The 50/20/30 budget rule, for instance, can be a guiding light.
It was first published in US Senator Elizabeth Warren's book All your worth: The Ultimate Lifetime Money Plan in 2005, but has since helped millions across the globe in putting their financial house in order.
As per the rule, the first 50 per cent of your income should be allocated to necessities or running expenses. Broadly speaking, these include rent, groceries, utilities, transport, clothing, etc. - i.e. daily living requirements.The next 20 per cent should ideally cover all your long-term financial needs, such as retirement, life insurance, down payment for a house, car, debt repayments, like the ones on a personal loan, and even save for your child's education. Many banks in the UAE offer savings and special accounts that allow segregation of funds in your bank account. You can make pockets, or assign different goals to different accounts to save for your long-term needs.
There's no denying it is not just about adhering to the numbers, we all have an emotional relationship with money, too. It is, therefore, not prudent to deny ourselves the comforts for which we earn in the first place. The remaining 30 per cent of our incomes should be directed towards all our lifestyle expenses. Think of staycations, annual vacations, brunches, gym memberships, accessories for your pet, mobile phones, networking, etc - basically any activity that allows you to 'enjoy' your life.
By compartmentalising savings and expenses, we create safety nets for our financial health. You would be amazed to see how simple trade-offs can generate a lot of wealth and allow you to live a stress-free life.
Financial rules to live by
Stick to your budget: The most efficient way to keep a tab on money is to write down all expenses, or better still, make use of personal finance apps that help you keep an account of every 'fil' that makes its way in and out of your wallet. Once you have clarity on where you are spending, you will be able to rein in frivolous expenses
Don't let your money
Sit idle: Long-term savings should be put in investment products that allow your money to work as hard as you do. Look for high-earning bank savings accounts that give you better profit sharing rates. For long-term needs, it is better to park your funds in mutual funds, equities, and gold
Not everything that you want is really required: Consumerism is on steroid in the UAE, courtesy of the deals and discounts that run throughout the better part of the year and a surfeit of online shopping options available. Of course, differentiating between need and want might be hard to do but exercising some restrain can help
Read and participate in forums: Reading and talking to like-minded people about money matters can help generate ideas, help you stay focused, and it increases awareness. Online space is filled with blogs and information on personal finance that can allow you to get creative with money.
Money matters: Are you in control?
According to a survey conducted among UAE residents last year, more than 50 per cent were happy with their current financial situation, with around 1 in 3 claiming to always feel in control of their finances. However, 60 per cent had debts of some kind, with many finding it difficult to manage it.