COVID-19: UAE residents' money saving tips for living with a salary cut
Four UAE residents share their tips on budgeting income and controlling expenses
Dubai: Most employees in the UAE have experienced salary cuts, in the range of 10 to 30 per cent. While careful spenders have to further tighten their budget, those who never had to budget may need to think of ways to make income cover expenses and savings. We compiled budgeting tips from four UAE residents who have always controlled and planned their budget carefully to bring you their top tips.
From spreadsheets to envelopes of money, these tips can be modified to suit your situation. All of them have one thing in common - planning ahead. It could start with planning ahead for the next month or planning for the next year depending on individual situations.
Be like the average American millionnaire
If you want to save money, begin by making a list of where you spend it - Alex Abraham, Senior Associate Editor
Irrespective of what we spent; my wife and I would record it in the diary at the end of the day
I am not a financial pundit, nor am I a millionaire. But I have tried to put into practice some of the lessons I learnt early in life concerning the use of money.
One of the fundamental principles that has guided my life is that I am a steward of resources, not the owner. This means that I have been put in charge of wealth so that I can take care of it and put it to good use. The idea is that I am responsible and accountable for how I use the money that has been entrusted to me, in my case – a salary.
How do I use it, how do I spend it, how much do I save?
Over the years I have met many financial analysts who have enthusiastically offered to help me with financial planning. I have always said ‘no’ to them. For them it meant investing in a product that they were trying to sell. But not one of them told me that one of the foundation blocks of saving is to write down where the money goes.
How does that help?
A few years ago I read a book that was on the New York Times bestseller list entitled The Millionaire Next Door. It was an eyeopener. The book went on to say that the average American millionaire lived well below his means, wore inexpensive suits, drove American-model cars, was a meticulous budgeter and fastidious investor. And there was one thing most of them had in common – they were frugal, avoiding wasteful expenditure and hyper-consumption.
Most of them also knew exactly how much they spent on food, clothing, shelter and other expenses because not only did they keep a close watch on where their money went, they also recorded it.
After we got married, my wife and I maintained a diary to record our expenses. I was inspired by an uncle who would sit down and write every expense made during the day. (At 87 years of age, he still records every single rupee that is spent).
Irrespective of what we spent; my wife and I would record it in the diary at the end of the day. There were two advantages – we could track our expenses and at the same time be accountable to each other with our finances. We never questioned each other on what we spent, but the fact that it had to be written in the diary meant that we needed to think twice before making any unnecessary purchase.
A few years later, we discovered a simple app named Wally where we could record our expenses. Once the figures were entered, it would compute the data and turn it into a pie chart. In short, at the end of a week or month, we could get an exact idea of where our money had gone. Add a budget and the app will tell you how you are placed financially.
The pandemic has made financial calculations simple. As groceries are purchased once a week, and with fewer outings over the weekend, it is easy to calculate expenses. Once again, writing down financial goals helps the process.
Here are a few tips on how to handle money better, especially during the pandemic period.
1. Make a budget – Be realistic when you list the expected expenses for the month, but make sure you live within your means.
2. Keep a list of your expenses – Tracking what you spend could be the key to better savings. Enter your expenses in a diary / excel sheet or an app. It will help you keep track of the money spent and ensure that you stay within the budget.
3. Differentiate between ‘needs’ and ‘wants’ – If you find it difficult to save, ask yourself if what you buy is a need or a want. You will be surprised that most of the money we splurge on are ‘wants’.
Pay yourself first and account for everything
Spreadsheet obsessive John Selby (named changed) is a British expat and father of three living in Dubai - As told to Tabitha Barda
In short, my money-monitoring has been fuelled by a desire not to live beyond my means - and so far it has worked.
For every day of the last 12 years I have counted every single dirham I have earned and every single fil that I have spent – first jotted down into a notebook, and then entered into an increasingly sophisticated spreadsheet.
There are columns dedicated to every type of expenditure – from utilities and school fees, to work lunches and weekend entertainment - and a formula that monitors what proportion of my monthly income goes to each category and how it fluctuates month to month.
My spreadsheet has become so refined over the years that I could tell you, if you were crazy enough to want to ask, exactly how much the weekly grocery shop cost me in April 2014, or how much I spent on café-bought coffees in the 3rd Quarter of 2017.
Perhaps this behaviour would not be considered normal, and it I started so long ago that I cannot clearly remember why I began the exercise. But I think that it was informed by a quote from the Dickens novel David Copperfield, in which the character Micawber states what can be roughly paraphrased as: “Annual income Dh100,000, annual expenditure Dh99,999 – result happiness. Annual income Dh100,000, annual expenditure Dh100,001 - result misery.”
In short, my money-monitoring has been fuelled by a desire not to live beyond my means - and so far it has worked.
Obsession or necessity
While I’d be the first to admit that my compulsion to count the pennies has become something of an obsession, the pressures of family life means that it is increasingly important to be careful with money - in a way that was not the case a decade ago before I had three small children to look after – and this way I have a complete control of my finances, so I can make the most of the resources I have.
This couldn’t be more important than in difficult times like the ones we are all experiencing now, with the economic shock of the pandemic having a negative effect on many people’s finances. While my spreadsheet might be quite old-school, there are many apps available now that will do the same thing for you automatically. The ability to know where your money is going is the first step to ensuring that it is being spent in the right way for the benefit of your family and loved ones.
Top Tip: It is very important to save: pay yourself first before anything else by setting aside a proportion of your salary (however small) and only spend the remainder. Do this at the beginning of every month rather than the end.
How to save the pennies
Strict budget, prudent credit card use can help in cost management - Somshankar Bandyopadhyay, Assistant Editor
Now with salary cuts, we transfer these excess funds to draw less from the next month
I have always considered myself a prudent spender. That habit has helped me most during these COVID-19 times, when money concerns remain paramount.
Like most, I too have a monthly budget, which I divide into different envelopes to ensure sub-budgets are met. These envelopes are marked ‘food & groceries’, ‘electricity’, ‘phone & internet’ and even ‘fun & frolic’. It was essential to meet the monthly budget overall. If there was any extra cost on a particular head, we would manage by diverting funds from another head. This mostly happened (and still happens) on the ‘electricity’ head during summer. But it is made up during winter.
A balancing act
The difference between now and then is this. Earlier, whatever we managed to save would be kept aside for any splurge expenses when our daughter comes for the holidays from her university – extra eating outs, cinema visits etc. However, now with salary cuts, we transfer these excess funds to draw less from the next month. Also, while working from home has resulted in lower fuel bills, it has also resulted in increased electricity and phone bills. So, we use the excess funds from the fuel costs to meet these utility bills.
Prudent use of credit cards also helps in a certain amount of savings. For example, I get loyalty points when I use my credit card. When these points add up to a certain level, I get vouchers that I can redeem at select stores. This also goes for shopping at a particular hypermarket where the loyalty points add up to a cash voucher after a certain point. In this way, over the last five to six months, I have accumulated vouchers of over Dh1,000.
The point to remember is not to go overboard while using the credit card. I follow a simple rule in this regard. Suppose I have a budget of Dh1,000 for ‘food & groceries’ for the month. So when I go to the hypermarket, say my bill comes to Dh200. I will preserve these bills, and when I come back home, I will remove Dh200 from my ‘food & groceries’ envelope and keep it in the ‘credit card bills’ envelope. This way I can watch my spending.
Top Tip: Make a budget and stick to it. Keeping close track of all expenses. This will help you save those pennies at the end of the month. Sometimes, it may seem like a drop in the ocean. But as the late Mother Teresa once said, “The ocean would be less because of that missing drop.”
Spend a few minutes to save a lot of money
The first step is to know exactly how much you spend and save, on average - Dona Cherian, Assistant Online Editor
Budgeting like this is more about being aware of where your money is going rather than just frugality
With a salary cut, the hard part is that expenses don’t fall commensurately. While working from home might save you fuel, the entire family being home can spike utility bills, especially during summer. Pre-COVID times might have given you the luxury of not planning exact budgets for expense items but if there’s any good time to start, it is now.
Rent payments, monthly telecom and utility bills are inevitable but can take big chunks of your salary – note these down. Go through your bills over the last three months to understand what you spend on different items other than these such as grocery, dining out, fuel, shopping etc. Also go through your credit card statements for any fees you may be paying and to see your average monthly expenditure on there.
After your evaluation, note down the items and expenses in a book or an excel sheet. You could also use a free budgeting app – some can even sync to your bank account, only use those if you are 100 per cent sure about the app’s security features.
How does this help me?
For someone who has never done this or never had a need to, this might look like much ado about nothing. During a salary cut however, the first step to keep up with your savings or expenses is to know exactly how much you spend or save. From these notes, you will get a generic idea of fixed [rent] and variable [dining, shopping, food] expenses.
The next thing I do is make a mental note on how much I will spend on variables the upcoming month. I use my credit card to avoid the problem of change when using cash and resultant ‘loss’ of money – for those of us who don’t know exactly where every coin and Dh5 note is. I budget my grocery to be at or below Dh1,000 for example. This limits my mental allowance for impulsive buying, which for me happens usually for food. This also helps me make sure that I have enough leftover to pay my full outstanding credit card bill each month – so I don’t pay extra in fees or have debt while points get added on for using the card.
After looking at my postpaid bills, I was using more than my free call allowance calling back home, spending an extra Dh30 each month. Now I always check my free call balance before making a call. I have saved over Dh200 just over the last 6 months by doing this.
So, look back and correct expenses to ensure you’re not paying extra on anything you shouldn’t be. This is more about being aware than being extremely frugal. It is also a good financial habit to have when you get your salary back.
Top tip: Even a Dh1 saved somewhere is worth the trouble, they add up. Remember, companies make millions with extremely small amounts drawn from customers who don’t look at their finances. Why not save that coin yourself? After all, it is your hard-earned money and all this will take is a few minutes each month .