1. Define clear goals to save money
- Saving is not a disparate activity; it must be carried out concurrently with routine expenses. More importantly, do you know what you are saving for? A good way to begin is to split your income into three parts:
- Routine expenses: set aside a certain percentage of your income in a more accessible current or savings account, to be used for routine expenses;
- Short-term goals: funds for short-term goals, such as holidays, gadgets and home interiors, are best maintained in a savings account or short-term deposit, which also provides you with a nominal interest;
- Long-term goals: these, obviously, call for larger amounts. These funds must be put away periodically into fixed instruments, which not only ensure growth, but also check one's temptation to spend.
2. Prioritise your goals
Prioritising your most important goals, such as a dream home, marriage, or university for children, ensure you are always on track to achieving them. If you attempt to realise all goals simultaneously, you may spread yourself too thin and not manage to achieve any.
3. Create an emergency fund
Life is full of unforeseen circumstances and it is only during times of extreme financial crisis that we often realise we do not have enough savings to overcome the unexpected crisis. Faced with emergencies, and with no time to think, we tend to increase debt. The top priority should be to create an emergency fund equal to three to six months of your monthly income - money that can be instantly dipped into in the event of a medical emergency, job loss or other instant chaos.
4. Take out an insurance policy
This will safeguard your loved ones in case of a mishap. But consider the terms and conditions of the policy carefully. Ensure that the insurance cover is adequate, while the premium is comfortable enough for you to keep paying on an ongoing basis so the policy doesn't lapse. Does the policy offer guaranteed investment returns?
5. Borrow money for investment, never to finance your lifestyle
In the UAE, there is always easy access to unsecured loans, so the temptation to borrow is high. Stop. Are you borrowing to finance a lifestyle you cannot afford? Or do you need the money for reasons that will generate long-term returns. Invest in yourself for education, training, gaining knowledge, or an additional skill, buying a house or lateral investments. Borrowing to fulfil short-term goals can be counterproductive unless one has the discipline to pay off the debt before the due date.
6. Take buying decisions prudently
Compare prices of items before you buy. In a place like the UAE, where the same product may be sold by different retailers, there is a chance you might get a better deal if you compare the prices. Also, if you don't require an item urgently, it might be prudent to wait until there is a sale and the same product is available at a lower rate. In some cases, if you wait long enough, you might realise that you don't need the item any more.
7. Manage spending within your existing income, not an expected future income
Gone are the days of regular increments and fixed bonuses. You should plan your expenses within your existing income and not an anticipated income after a raise. So don't buy that luxury car just yet; put off the purchase until you can actually afford it.
8. Saving is a habit that can be learnt
Teach your children the value of money and the benefits of saving. Buy them that money box so they can accumulate some money and buy their favourite toy with their own savings. The habit will stay with them for life.
9. Cutting down on small expenses can add up to good savings
Cut down on the number of cups of coffee and delicious desserts you have, walk short distances or take the Metro instead of hailing a cab. Your health will definitely benefit and you can also save a decent amount of money over the years. You could then look at investing this amount in something more beneficial in the long term, such as a fitness club membership or educational course.
10. Enlist expert help from time to time
Diligent financial planning should ideally be a regular disciplined habit rather than a one-time activity. It is useful to take stock of one's financial position periodically and put things in the right perspective, and a financial expert is trained to do just that. Just as a house is built brick by brick, there really is no magic solution to building savings. Inculcating the savings habit calls for the discipline to save small amounts regularly, which can then compound to a large sum.
Suvo Sarkar is the general manager of retail banking at Emirates NBD