We are a working couple. Can you give us some personal finance ideas to kick-start our financial planning?
Being an expat in the UAE, it’s vital to have your financial plan on board as early as possible.
The suggestions I offer only provide a general direction and may not really give you the precise picture in the beginning but will create the root for long-term planning.
Pay yourself first is the very first rule of personal finance. That means keeping aside a certain percentage of your monthly income before it’s consumed. Remember the 50/20/30 per cent saving rule wherein 50 per cent of your income should go towards basic living expense needs, 20 per cent to savings for your short, medium and the long-term goals and the rest 30 per cent towards wants which are not essentials. This can be tweaked depending on your age and circumstances.
While getting a car loan always remember the 20/4/10 rule – 20 per cent for the down payment amount and 4 for the number of years of financing wherein 10 per cent is the total monthly expenses you should have including EMI, fuel and maintenance.
You also need to set aside a welfare fund for emergencies. This should be sufficient to meet your 3-6 months’ worth of household expenses.
Life cover is another essential and crucial requirement one must plan for. Ideally, one should have a life cover which is 8-10 times your annual income. The cost-effective way of buying life insurance is through a pure term insurance plan, as it gives high cover protection plan with low premium where the premium goes entirely towards the risk coverage.
One can also consider using the ‘100 minus age’ approach for investment in equities. For instance, for a 30-year-old the investable surplus should be 70 per cent in equities. Depending on the age, the allocation to equities drops as it’s considered more unpredictable than debt.
It could be a good way to begin but over time, allocation into equities will depend on objective tenure.
Remember, there is no ‘one size fits all’ approach to financial planning. Every individual’s finances need amendments depending on the risk profile and situations.
Start off by being prudent and strategically allocating your finances. However, over time it is essential to review and make changes in your plan to enjoy healthy saving.
Dhiren Gupta is the managing director of 4C Mortgage Consultancy, is a financial expert