|09 September, 2019

Saving and investing: How you can start

A little bit of rejigging can surely allow us to squirrel away some moolah and give our saving attitude a boost

Image used for illustrative purpose. Two business people calculate their business in the office.

Image used for illustrative purpose. Two business people calculate their business in the office.

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Living from pay cheque to pay cheque isn't the best way to have a financially stress-free life. Yet, a lot of us are guilty of doing so. Why? Well, it could be because we often take consolation in the fact that we don't earn enough to save in the first place.

Instead of savings, it is our expenses that are on an auto-pilot mode. But it's not hard to develop a saver's attitude and get our financial health in order.

A little bit of rejigging can surely allow us to squirrel away some moolah and give our saving attitude a boost.

So, in the third part of our #BeMoneyWise series, we are exploring ways on how you can kick-start this journey of saving - and feel good about it.

Automate your savings

Automation works, and not just for individuals like you and me but for governments, too.

A number of countries and companies across the world use default options that encourage people to save for their retirement or pay for their insurance.

This means, even before people get paid, a part of the pay cheque makes its way to the savings kitty.

One way to start doing this is using one or all of these measures:

Recurring deposit: The best and the most consistent way to save is by putting a certain amount in dedicated accounts that help you earn a little extra every month.

If you haven't built an emergency fund yet, it is time to use a recurring deposit account to do so. Most banks offer this facility and, if you use online banking, you can open it on your own with just a few clicks.

Start with as little as Dh500 a month, aim higher or lower depending on your expenses, and stick to the habit for a year.

You will be happy to see the results at the end of 12 months. Of course, profit-sharing rates in the UAE are on the lower end of the range but, even then, you will generate tad higher than Dh6,000.

It's an amount that would have potentially been spent on any lifestyle-related expense had you not stashed it away in a recurring deposit pocket.

The idea is to ruthlessly cut expenses wherever possible to start your saving journey. Build an emergency fund.

"The objective here is to have funds for an emergency need. So, you can dip into this account if you face any financial shock like your car breaks down, or medical expenses for a family member, there could be a number of reasons," explained Paul Callaghan, a financial adviser with Arlo Wealth.

Mutual funds: Systematic investment plans (SIPs) offer a great way to build wealth. Managed by professionals at asset management companies, these are funds invested in a wide range of assets - such as equities, bonds, bullion, etc - and give returns far higher than what a bank deposit can earn for you.

In the long run, equities on an average have given double-digit returns and helped millions around the world in generating wealth.

"Mutual fund SIPs are a great way to invest, especially for people who have a limited sum to stow away every month. Bank deposits mean safe parking of money. However, even with the interest from the bank, in real terms, the value of our money diminishes because of inflation.

"Mutual funds, on the other hand, give much more than bank deposits," said K V Shamsudheen, a life-long financial campaigner in the UAE.

Mutual funds always give the advantage of dollar cost averaging, which means that regular, monthly investments help you get better returns compared with lump-sum investments.

"When an expatriate returns, SIP investments can be used for monthly expenses. Most mutual fund houses allow systematic withdrawals, which is a great way of utilising accrued wealth. There are funds that are giving 15 per cent annual returns.

"For instance, your monthly savings have allowed you to build a corpus of five million. If you make withdrawals of one per cent every month, you will get 50,000 for monthly expenditure. The rest will keep growing," Shamsudheen added.

Don't get cold feet at the thought of parking your money in assets or markets you don't understand. Ask questions, read, and think before you spend.

Keep every Dh1 change and surprise yourself

Remember having those coin banks when you were young? Little savings and money gifts usually made their way to fancy money containers and helped us accumulate our own heap of wealth.

Start doing it again, for fun's sake. Stow away every Dh1 coin you get as change, and keep putting it in a box, jasper jar, or wherever you like.

Just don't 'withdraw' anything for a year - and, voila, you could have enough to fund a ticket to a music concert.

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