Vijay Valecha, Special to Khaleej Times June 11, 2021
If there’s one thing the Covid-19 pandemic has taught us, it’s the importance of financial preparedness. Saving more has been high on personal agendas as a lot more people appreciate the relevance of an emergency fund to tide them over in case of unexpected crisis. The latest numbers from the Central Bank of the UAE on savings in bank accounts also somewhat point to a changing attitude towards money.
The central bank data shows savings in bank accounts of UAE residents have increased from Dh10 billion to nearly Dh199 billion during January and April this year. While this might not reflect the reality of all, or perhaps even a large number of residents, it surely points at the need to stash away more cash for emergency use.
If you are looking for ways to save more and stay out of debt, financial experts offer these tips:
1. Get real about needs and wants
Food and housing should be top priorities, beyond that, take a hard look at your expenses and identify needs and wants. Be ruthless with your discretionary expenses and quickly eliminate everything you can live without right now. Pause any recurring subscriptions on, say, music apps, magazines, gaming apps, and make an effort to cut back on online shopping. While such memberships might seem important in normal life, they could go in recessionary times.
2. Revisit your shopping habits
Don’t prefer convenience over extra expenditure. Be Scrooge-like and hunt for deals. Download apps and compare prices before clicking on the buy button. Visit the deal section in grocery stores to ensure extra savings.
3. Make minimum debt payments, if necessary
Cash is still king and if you are too hard pressed on it, build some wriggle room by seeking moratorium from banks or financial firms for a month or two.
4. Build an emergency fund
When taking on insurance, the fine print is very important. “Understanding what you are being insured for is essential. Read the terms and conditions carefully. Ask about exceptions. Is there a minimum term you must pay the insurance for before you can make a claim?” advises Stuart Porter, a Chartered Financial Planner based in Dubai.
6. Don’t evade the lender, negotiate
What if you lose your job and cannot repay your debt obligations? Financial experts suggest talking to lenders rather than panicking or keeping mum about it.
One should also explore the possibility of reaching out to family and friends for help. “But it is important to have a clear repayment plan in place,” says Vishal Dhawan, a certified financial planner and CEO of Plan Ahead.
However, borrowing more money should be avoided, unless it is a gift from a family member, advises Porter, adding, “Unregulated lenders or ‘loan sharks’ are prey to people in this situation. Under no circumstances should anyone borrow money from one of these lenders.”
7. Cash in on your assets
If there are investments you have made in the past, whether in stocks, gold, real estate, etc. it is time to take stock of their value and see if you can exit some of them to pay off debt. “For instance, you may have some money lying in equity that is delivering a high return today or maybe even a loss. Exit it,” advises Dhawan. It may not be prudent to try to make higher returns on an asset when you are paying a high interest on debt.
Communicate with family: Opening up to family, especially dependents, is usually tough in times of financial crisis. But communication is key. “If you have been offering support to family members like parents, understand whether they truly need it or are in turn investing it away as they do not actually require it for their expenses,” says Dhawan.
You could possibly channel such savings into building an emergency fund for yourself or use it for priortised spending.
8. Upskill yourself
At a time when job uncertainty still looms high in many sectors, it is prudent to tighten the belt and start preparing for a plan B. “If redundancies are expected, you should plan for different scenarios. Think about what you would want to do if you are made redundant. Maybe this is an opportunity for you to assume extra responsibility either within your existing firm or with a new employer. Update your CV and be ready to put your plans in to action,” says Porter.
Dhawan adds: “Be prepared to do some reskilling and keep some monies away for it. Also, explore if a spouse who has not been working can consider going back to work.”
Expatriates do not have any social security and therefore it is important to be financially independent. Make a plan and be mindful of how you spend, save and invest your hard-earned money.
Common financial mistakes that residents make