We live in a world of information overload. Bombarded day and night with heady stimuli, we want that vacation in Bali, the Dh5,000 pair of shoes, children in a premium international curriculum school and dream about retiring at 45.
There’s nothing wrong with dreaming, but post 2008, when the world economy went belly up, dreams were put on the back-burner while practical aspects such as financial planning, smart loans, credit health, debt management and risk mitigation took on a whole new meaning.
Planning
We still live in a time of instant gratification, but the workout- the-details- as-we-goalong attitude will no longer cut it. Planning and being wary of the common financial pitfalls at every stage of life is key, say experts.
GN Focus invites a panel of specialists to chart our financial lives and to point out the common mistakes we should watch out for in our twenties, thirties, forties, fifties and sixties.
The panel includes Robin Thornton, Assistant Vice-President Customer Relationship Management, Global Eye; Rebecca Ward, Financial Consultant, Mondial Dubai; Sandi Saksena, Financial Counselor, NexusInsurance Brokers; and Amit Mitbawkar, Senior Wealth Planner, Acuma Independent Financial Advice.
Expert advice
Before you dive into their advice, here are some quick tips on how to monitor and streamline your spending.
• Monitor your spending for two months, then section it into categories such as entertainment and food. Combine the list with monthly bills such as mortgage, rent, utilities and loans to get a clear picture of your spending habits.
• Create an emergency fund equal to three to six months of expenses to help you through unexpected events.
• Keep your loans to a third of your income.
• Get your medical insurance to include maternity.
• Personal loans should be taken to purchase your own home or an asset that is guaranteed to appreciate.
• Use the concept of debt stacking to get rid of your maxed-out credit cards. This means clear the smallest credit card first by stopping payments on other
cards, then repeat the process with the next, larger debt until all the cards are cleared.
20s
The twenties can be a tricky decade. You’ve just entered the workforce, which means earning a salary and having very little responsibility. The biggest expense is university education. Some students end up paying up to Dh550,000 or more to fund six years of university in the UAE. Four years of university education in the UK can cost up to $160,000 (Dh588,000), including lodging and airfare, says Mitbawkar. “Most of you will end up buying your first car in
your early 20s and that can set you back up to Dh100,000 or more.”
Watch your step:
• Avoid student loans if you can, advises Mitbawkar. Work part-time and earn money to pay your fees, live off-campus and commute and apply for scholarships
to save on fees.
• When buying a car, get a modest set of wheels. To begin with, buy a used car instead of a new one.
• “Try and get into the habit of saving at least 15 per cent of your income every month into a regular savings scheme — even $100 a month saved in your
20s makes a huge impact in the long term,” says Ward.
• Don’t put everything on credit to think about later. If you need to take an auto loan, look for deals that are interest-free for fixed term or deals on insurance and service, adds Ward.
30s
Your thirties are the decade of the three big Ms: marriage, mortgages and mini monsters. An average wedding anywhere in the world costs $25,000 and the cost
of bringing up a child to the age of 18 in the UK is £148,000 (about Dh904,176), says Thornton. According to financial adviser Candour Consultancy, bringing
up a child to the age of 18 can cost parents in Dubai up to Dh1.14 million.
Watch your step:
• “When buying a house, make the most of the advice available from loan providers so you know the short- and long-term costs. Also keep enough money aside to cover expenses such as emergency home repairs and insurance,” says Ward.
• Thornton believes that not buying your first property in your home country can prove to be a big error as we all need a bolthole in the future.
• No matter how tempting, don’t go for expensive weddings because it’s you and your family who will remember the bills, not the guests, adds Thornton.
40s
This is the most financially stressful stage for the married- with-kids group, as the financial horizon is marked with massive spikes in expenses,” say Saksena, “And this is when one reaches for loans, taking on more credit cards and not bothering to pay the full outstanding amounts.”
Watch your step:
• Buy a smaller home for less expensive utilities and maintenance. Keep your budget to three times your annual salary, recommends Mitbawkar.
• Don’t make the mistake of not using salary increases and bonuses to save up for later. Get into the habit of paying your creditcard bills at the end of each month and get the most out of them — select companies who offer incentives such as air miles so you are rewarded for your spending.
• Make sure you have an adequate life and critical illness cover in terms of insurance policies. This is also a good time to draft a last will and testament, says Thornton.
50s
By the time you are in your fifties, the uphill climb is mostly over. “This is also the decade when you may be tempted to treat yourself to expensive holidays and luxury cars, and why not? “But don’t falter too near the finish line, keep abreast with exactly what your savings and investments will yield
once you’ve retired and if you’re lagging behind, it’s important to top them up while you still have earning power,” says Ward.
Watch your step:
• Don’t make the mistake of quitting too early as your pension and savings should last between two to three decades after retirement, says Ward.
• This is also a time when you may decide to chuck your salaried job and venture out on your own. However, to do this, one must have a financial safety net in place, which means no loans, at least one year of living expenses taken care of including all the appropriate insurances: medical, life and critical illness, at the very least, adds Saksena.
60s
Contrary to popular belief, this could be the best time of your life. “I call it the Power Years where people with work and life experience use their expertise and take on the assignment of their choice,” says Saksena. But, cautions Mitbawkar, retirement can last for 20 to 25 years without an income. A typical retiree’s lifestyle in any of the major cities in the world can easily cost between Dh15,000 and Dh25,000 per month. Preparation for this phase of life needs to start as early as possible.
Watch your step:
• Don’t be tempted to overspend in the first few years of retirement, budget wisely.
• Avoid debts like the plague and don’t use credit cards if possible, says Mitbawkar.
• Do not look on retirement as the final chapter but merely a different financial environment that also has opportunities for you to grow your wealth, says Ward.
