Fighting fit through financial discipline

Dear Readers,

Now that the New Year festivities are over, you may feel uncertain about the economic outlook for 2016. Perhaps you find yourself fretting over oil prices, US interest rates or China’s volatile equity markets, even as you grapple with Dubai’s housing situation.

Be it boom, bust or plain-sailing — you should not panic over forces beyond your control. There is little you can do about the macro environment; but you can, and should, discipline your own finances. Only by minimising our debts, building up a savings nest and investing intelligently, can we all look forward to a stress-free 2016.

A total fitness regime is one that combines health and wealth. And just as physical well-being needs rigorous discipline, so does financial fitness.

This is not to say we should turn a blind eye to the many risk factors across the region. The trick is to figure out how and when could we be affected by global economic forces.

There is no doubt that 2015 has seen a big shift in the economic momentum in the Middle East. The rapid decline in oil revenue, which has resulted from prices falling from over $100 to less than $40 a barrel, has had a significant impact on growth plans of corporates and governments across the region.

GCC governments are under pressure to reduce deficits on the one hand — mind you, Dubai announced a zero deficit budget, and that is a big plus — while ensuring safety for low- to middle-income consumers on the other. There will be some pain though as we go along. Added to this are volatile financial markets and regional conflicts, which have subdued the confidence and investment appetite of private companies.

In this context, 2016 may not be a good year for remuneration, perks and bonuses. Companies will be forced to revisit efficiency parameters and take different approaches to rewards and benefits.

Then there is the crucial housing segment. Depending on whether you are a tenant or a home-owner fluctuations in the property sector are bound to affect you one way, or the other.

Coming hard on the heels of the first rate increase by the US Federal Reserve in almost a decade, UAE banks are likely to adjust their profit/interest rates. I understand that will be unwelcome news for UAE residents who are already feeling the pinch from higher consumer prices. It will also be hard on property owners who took out variable home financing.

However, it is not all doom and gloom. Depending on which side of the divide you are, the macro environment could work to your advantage. This could be a happy year for tenants as rents in most of Dubai’s residential communities, particularly freehold areas, will likely remain static or may even decline compared to 2015.

But whatever your financial situation, it is important to cut through the information overflow and delineate the real-world challenges that could impact your material and mental well-being.

Take back control

Even if you are comfortably placed, there’s no reason why you shouldn’t follow a financial fitness regime from now on.

Emergency fund: Ask yourself, with brutal honesty, if you have built an emergency fund to last you at least six to eight months in case of job loss, illness or accident. This fund may not yield high returns, but should be easily accessible. Also remember never to use this fund to cover day-to-day expenses.

Budgeting: This may seem a mundane exercise for someone in their prime, but it is an important discipline for everyone, regardless of income levels.

To create a budget, start by listing your inflows — salary, income from rent and other investments. More importantly, make a detailed list of your expenses — including living cost, rent, insurance, travel, education holidays and entertainment, charity donations etc.

Manage debt: Work out what you owe others. Start with home financing, add in personal finances, credit card payments, or long-term holiday schemes you may have committed yourself to.

Remember, not all financing is bad, but always try to clear away expensive debt first. Regularly review your home financing to ensure it remains competitive.

Multiple accounts, credit cards and financing with various banks are too complicated to handle. Limit the number of credit cards, and try to deal with just one bank for all your financial needs.

Financial goals: Most of us have a strong sense of instinct when it comes to setting financial goals — be it children’s education, holidays, property, insurance and retirement. The next step is to project future income and costs to decide whether you can afford to fund these goals.

Savvy saver: Even as you take stock of your expenses, debts and goals, never compromise on savings. Always set aside a percentage of your income, however small, and encourage your family members too.

Investment strategy: A key question when it comes to investing is — when do I need the money back? Always plan for the short, medium and long term, diversifying your portfolio intelligently. It should be a blend of lower-risk investments such as term deposits, Sukuk, property and higher risk stock market exposure.

But remember, safety first. Hope for the best, plan for the worst!

Yours,

Hussain Al Qemzi

Hussain Al Qemzi is CEO, Noor Bank. Opinion expressed here are his own and do not necessarily reflect that of the bank or the newspaper.