Feeling the pinch as you see an all round increase in costs? Are you seeing your savings going down because of a rise in housing rent or mortgage, bigger grocery bill, increased school fees for your child, and a hike in car insurance payment? Or what you saved every month last year you are unable to do so this year? Folks, it’s time to tighten up your belts.
Those of you who are seeing your cash depleting fast with little or no savings at the end of the month, it is high time you start spending just on necessities, and even consider reducing on those necessities, while cutting down on non-essential expenses and saving more for the rainy day as well as meeting your long term financial goals. Amid this rising inflation, it behooves to get back into a careful review of your current spending. Where is your cash going?
This calls for getting your budget calculator out or using software such as Microsoft Money or Quicken, which are free to download. Or those not into software, just take a piece of paper and pen and jot down the incoming money and the outgoings. Here’s a guide of what you can do or should do:
1. Start with making a list of all expenses (see table with different kinds of expenses and savings).
The first and foremost is to take look at the bigger chunks of your spending. And then the smaller ones. In fact the smaller ones, when added could indeed be substantial.
“However trivial it may be for the whole month, when one revisits these expenses they will realize and identify an array of expenses that they could well be avoided,” said Krishnan Ramachandran, chief executive at Barjeel Geojit Securities that caters to the investments needs of more than 40,000 non- resident Indians in the Gulf. “It is estimated that nearly 15% to 20% of expenses can be controlled when you know what and how you are spending.”
Don’t depend on windfall such as bonuses to make adjustments to your tightening situation. That unexpected or may be expected bonus should always be either put away into your emergency fund or in putting down a bigger debt or loan repayment to lighten your burden quickly.
(a) Consider moving or try and negotiate
The biggest chunk is going towards your rent and utilities together. May be it’s time to reconsider this part of the spending.
“Practical ways to save money are to move to a cheaper location, and Sharjah has already seen a dramatic increase in rents itself as early movers start to return,” said James Thomas, regional director of Acuma-Independent Financial Advice. But he does acknowledge that it might not always be an easy option for families with children going to a school closer to the present property.
“There are moving costs, relocating children to new schools, or the extra time required to commute to work,” he said. “However, this is still a way to save a significant amount in rent, and is generally the single biggest cost people face.”
But those who want to stay in their current apartment could do well to try and negotiate with the landlord to reduce the increase. If you think the increase is arbitrary and high, check with Rera (Real Estate regulatory Agency in Dubai). . “Are expats at the whim of landlords though? Probably not,” says Steve Gregory, partner at Holborn Assets, Dubai, “because increases at high levels are rarely accepted by RERA and should be checked with the authority before being agreed by tenants.”
(b) Reduce your food bill
Even the spending of food bill could be reduced. No not by cutting down on your calorie intake, but substituting less expensive items, not necessarily of in terms of low quality, nutritionally speaking.
This writer, for example, has substituted high priced basmati with a lower priced brand. And in many homes, there is from time to time wastage of vegetables or other stuff because of over buying. You can very well buy in smaller quantities.
(c) Cut down on non-essential spending
It’s time to focus on lifestyle changes for those who spend considerable on this front.
“Managing the expenses in times of inflationary trends is quite a challenge for a middle income family,” said Ramachandran. “The immediate impact will be on the lifestyle changes that the entire family will be constrained to adapt.”
- If cash is leaking fast and you are not left with savings, typically, that should start with postponing or cancelling the purchase of a household item such as an expensive television (LED, HD 42 inch TV etc.), a laptop, a smartphone, and holiday plans.
- The next should be a reduction in the money spent on outings such as shopping, dinners, movies and long drives to the beaches of other emirates.
- Also, a relook at the cable television package that brings the world to your room and instead going for a cheaper option with the fewer channels, ones that you most want to see, gym or sports membership, your daily commute in your car, whether ownership or rental expenses and taking the metro and bus if that is closer to where you stay—if not now, but may be after the summer ends.
“Reviewing budgets carefully might mean less travel and eating out for some people,” said Gregory.
Ramachandran said that of these cuts and sacrifices are easier said than done and many a time the adjustment phase lasts for a few months and then there is a move towards the old lifestyle, which invariably leads to a lesser saving potential and increase the prospects of getting into debt.
“It is therefore quite important to understand upfront that such instances are bound to occur and one needs to plan for this well in advance”, he added. “There has to be a portion set aside from ones total savings to meet such contingencies – if not fully at least in part.”
(d) Opt for deals for leisure activities
And this is not to say you have to give up all of these leisure activities entirely. There are still great deals available from the special offer companies that market them, and the Entertainer book is jam-packed with money savers, as are other publications. Deals online are another source. And enjoying time with friends could well take the American potluck route.
“It’s not necessary to pay Dh400 plus for a brunch when many exist at around Dh100,” said Gregory. “And flights are available these days from newer airlines if you want to travel on a smaller budget.”
2. Avoid defaulting on your debt
At no point should you defer payments on your outstanding debt, whether it is on your credit cards, personal loan or mortgage payment.
Even if you see your savings coming down because of rising living expenses, the payments which you have been making regularly over the past year(s) to pay off your debt, should continue. Religiously.
One default, and because of high interest rates on cards in the UAE for example, will simply set you back by a hefty sum in your next payment. And that means, adding to your already leaking cash and putting pressure on your finances that could suck you into a debt trap.
“While interest rates continue to be low, it is a good time to pay down debt, and I would never advocate taking on extra debt to cover living expenses as this is a recipe for disaster, as it can lead to more and more money being borrowed to finance daily expenses,” said Thomas.
When it comes to paying off your mortgage in your home country, be aware, and make adjustments accordingly, of what an increase in interest rates might mean.
“If a mortgage increases from 4 per cent to 8 per cent in interest payments, double the payment is needed monthly,” said Gregory.
“Too many people are risking their homes because interest rates will go higher – it’s simply a question of when. Fixed rates are already becoming more expensive, and when rates go up people may default and house prices can fall. We have seen this many times in the past, and it is definitely something that people need to prepare for. This may be an excellent time to lock in long term fixed rates as a precaution even if they may be higher than variable rates presently.”
In case of India, that opportunity might have passed with banks raising interest rates few days back. And so, as you have to pay a higher mortgage, get yourself to adjust your daily and leisure expenses here.
3. Don’t lose sight of your long-term financial goals
It’s not just the debts and the regular expenses that you have to spend money on. It is equally important you have to keep saving and contributing to your emergency coffer, children’s college fund, and your own retirement plans. Especially on those plans where you have to pay, otherwise defaulting or discontinuing on those would mean taking a hit on the returns and in some cases even being punished by deducting all the previous gains made on your investments.
But yes, if you are finding it difficult to continue with some of the plans, better to go and sit with your relationship manager or financial advisor to rework on them to get the maximum benefit in these financially tighter times.
