Different kinds of financial planning

5 Different Kinds of Financial Planning

Living in Dubai has many perks. From experiencing life in its splendor to being a part of the global cultural hot-pot and working hard, Dubai is a city that will never let you leave. Financially speaking, Dubai offers a nearly tax-free life, leaving you with more disposable income than in your home country where taxes can take up a sizeable portion of your salary. Having said this, Dubai also has a wide range of avenues to spend which makes financial planning an absolute necessity. In today’s article, we will look at the different types of financial planning that you must consider.

Know More: How VAT implementation affects your daily life

What is Financial Planning?

In simple words, financial planning is a process which helps you make good decisions about your money. It helps you in achieving your financial goals. It is important to remember that financial planning does not merely cover your retirement or property buying plans but the entire range of your financial life. When you think about financial planning, don’t look at any aspect involving money in isolation but fit everything into the more significant financial plan of your life.

Achieve your Financial Goals with Real Estate Crowdfunding Investment

Types of Financial Planning

Being an expat living in Dubai, comprehensive financial planning includes a few important aspects:

Cash Flow Planning

Cash Flow is simply the money that comes in and goes out of your life at any point in time. To create an efficient budget, having a plan for your cash flow is essential. It acts as a guide which helps you make saving and spending decisions in an informed manner.

Typically, a cash flow plan takes the income, expenses, assets, etc. into consideration and predict the possible cash flow in the future. This helps you foresee the possible expenses in the future and plan yourself accordingly. A well-thought-over cash flow plan helps you demarcate money which you can use all through your life by managing your costs, increasing your savings and planning investments. It also highlights any shortfalls before they can affect you.

Insurance planning

This is a problematic aspect to think about, but if you are a sole person managing the financial responsibilities of your loved ones, then planning for the eventuality where you can no longer provide for them is critical. You work hard to earn, save, invest, and grow your wealth. However, ensuring the protection of your loved ones using insurance products requires your attention too.

Insurance planning

Know More: Property Insurance

At times, you might want to ensure that you provide an insurance cover to your family even before you start investing. Whatever be the case, insurance planning helps you approach this methodically.

Investment Planning

Investment planning forms a significant part of financial planning. All through your life you have different financial goals like marriage, children’s education, buying a home, retirement, etc. All these goals need the fuel of well-planned finances. It is essential to keep the following aspects in mind to create a good investment plan:

  • Clear definition of financial goals
  • The amount of money that you want to invest (either every month or every year)
  • The total time horizon of investment. Do you want to invest for 5 years or 15 years?
  • Your risk preference. Usually, higher risks to the invested capital are associated with higher chances of earning good returns. How much risk are you willing to take?

Choosing the right investment instruments will help in achieving your goals keeping the above-mentioned points in mind.

Retirement Planning

retirement planning

While retirement planning can be seen as a part of investment planning, we decided to address it separately since it is a long process and requires years of consistent investments. We all want to retire with dignity and not have to be dependent on our families (at least financially). Therefore, it is imperative that you spend time planning your nest egg.

If you start at a relatively younger age, create a plan and stick to it, by the time you retire, you will have a good corpus which can help you spend your golden years doing things that you like to do.

See Also: Retirement Planning – How Crucial is it?

Banking Planning

When you are living and working in a different country, one of the most important financial decisions that you have to make is where you keep your savings. Do you keep it in a bank in the country that you are currently residing? Alternatively, should you open an account with a bank in your country of origin?

Many experts suggest that as an expat, you should follow the A-B-C Rule. According to this rule, if you come from a country ‘A’ and live and work in another country ‘B’, then you should bank in country ‘C’. Why? Because, it keeps your money out of your origin country’s tax net, safeguards your savings against the potential threats (political or economic) in the country that you currently reside in, and saves you from the trouble of shifting your accounts if you move to another country.

Summing Up

Financial planning is essential to ensure a financially independent future and to achieve your financial goals. While you can create a financial plan by yourself, it is always better to talk to an investment adviser who can help you build one by considering all these aspects. Remember, you work hard to earn your money and save it. Therefore, to make the most out of it, you must create a financial plan which helps you achieve your goals and offers a better-quality life to you and your family.

organized financial life

Steps To Follow To Have Organized Financial Life

You work hard to earn money but somehow by the end of the month, your salary seems to have disappeared. You hear people talking about saving and investing and you are barely being able to manage your expenses. If this sounds familiar, then you probably need to start organizing your financial life better. Making the most out of your money requires planning and discipline to avoid problems like taking unnecessary loans, missed investment opportunities, etc. In other words, an organized financial life can help you use your finances efficiently. 

Also Read: What is Financial Planning and how to do that?

Simple Steps to follow to have an Organized Financial Life

Step 1. Observe where you spend your money

The most important aspect of organizing your finances if to know where you spend your money. Think about it, if you don’t know this, then how can you even start managing it? Many people find that when they start tracking their expenses, they are surprised to find how they are spending their hard-earned money for unimportant things. This can also help you identify areas where you can reduce expenses and have more disposable funds. You can use a simple spreadsheet for the same.

Step 2. Create a monthly budget

Once you know where your money is going, the next step is to create a monthly budget for your expenses. A budget is an important aspect of an organized financial life. It requires commitment and discipline. Ensure that you take all your regular and unavoidable expenses into consideration and also allow a fixed amount for leisure or indulgences.

Step 3. Track your bills

Every month we pay several bills like those for credit cards, mobile phone, electricity, etc. Every bill has a due date and if you miss making the payment by the given date, then you can attract a penalty, late fees, and other charges. These are unnecessary costs which can be avoided by ensuring that you pay your bills on time. And the best way to do that is to keep a track of the due dates of all your regular bills.

Step 4. Automation is your friend

In today’s times, with technology changing the way we do a lot of things, you must use automation to help you organize your finances efficiently. Here is what we suggest:

  • Set up an automated payment facility for as many bills as possible. This can help you reduce the time you spend on making individual payments and ensure that you never miss the due date and save on late fees, penalties, etc.
  • You can also set up an automatic transfer of a pre-specified amount into a fixed deposit or a recurring deposit. Add this amount to your budget under the heading ‘Savings’. Also, ensure that you save this amount the day you receive your salary. This will allow you to inculcate the habit of savings and eventually build some capital.
  • Once you have a reasonable amount saved, you can use automation to invest in your preferred assets like equities, mutual fund, etc. on a regular basis.

Step 5. Define your Financial Goals

It is easier to organize your financial life if you have a goal to work towards. Financial goals help you stay focused and disciplined and stay away from the next shiny thing in the market. A financial goal must be specific and measurable. It should also have a deadline. Some examples of financial goals are:

  • Clearing off all credit card debt within X months
  • Saving a fixed amount every month and creating an emergency fund for the next year
  • Saving for the down payment of the house that you plan to buy, etc.

Remember, a financial goal should be defined after considering several factors and it should be important to you. Only then will you stick with the plan and get your finances organized.

Step 6. Maintain a database of your accounts and investments

Organizing your financial life also means that you must have a database which has the details of your accounts and passwords. A quick glance at the database ensures that you never lose sight of anything. Also, in the unfortunate event of something happening to you, your loved ones can find this database invaluable.

Step 7. Audit your accounts and documents annually

You might change your phone number or email address or your place of residence over a period of time. Therefore, it is important to you check your accounts and documents at least once every year to ensure that they are up-to-date. While this may seem unnecessary, this practice is beneficial in the long run.

Also Read: The importance of saving and investment

Some Additional Tips

The steps mentioned above can help you get your financial life organized to a great extent. Here are some more tips to help you along the way.

  • There are many technological tools (software, apps, etc.) which can be used to make this process faster and easier.
  • Try to keep things simple. Do not open too many accounts or use too many apps or software. This can make it harder to manage. Simplicity is the cornerstone of being organized.
  • Talk to an investment advisor if you need the initial push to get started.

Remember, if you have never organized your finances or paid enough attention to them, you have to put some effort in the initially. However, as time goes by, most of the tasks will get easier and you will not have to spend so much time behind them. An organized financial life is the first step toward a financially independent future. Follow the steps and start organizing your finances today!

VAT implementation

How VAT implementation affects your daily life

December 31, 2017, was the last day where residents enjoyed a completely tax-free life in the UAE. On January 01, 2018, a Value Added Tax (VAT) was implemented in UAE. Although the rate of VAT is only 5 percent, it has influenced the overall cost of living in the region. Today, we will look at how VAT implementation affects your daily life in the UAE.

VAT Implementation in the UAE

The VAT is an indirect tax which is levied on different products and services. Currently, more than 150 countries have implemented VAT at different rates. The primary benefit of VAT is that it generates additional revenue for the government to offer public services and maintain civic amenities.

In the UAE, VAT is applied across products and services in three broad categories:

  1. Zero percent VAT – This should not be confused with the VAT-exempt category. The UAE government has decided to charge 0% VAT on products and services which are scheduled for export and international services, investment-grade precious metals, certain education, and health services and supplies. Further, residential properties which are newly constructed and supplied within three years are also charged 0% VAT.
  2. Five percent VAT – This is the standard VAT rate in the UAE which will affect all consumers. The government will apply a 5% VAT to almost all transactional goods as well as services. These include electronics, clothes, food, fuel, communication services, entertainment, etc.
  3. VAT Exempt – The UAE government has decided to provide VAT exemption primarily to corporate businesses since they bear tax costs on their own without passing them to the consumers. Further, first-time property buyers, residential leases, land buyers, and local passenger transport are exempted from VAT too.

Also Read: What is Financial Planning and how to do that?

Effects of VAT implementation on your daily life

Effects of VAT

Many UAE residents have been concerned about how the implementation of VAT would affect their daily lives. To begin with, let’s understand the fact that the 5% VAT rate is one of the lowest rates in the world. Countries like Sweden, Norway, and Croatia impose a VAT as high as 25%. In UAE, a product or service that you purchased for AED 20 in 2017, will now cost your AED 21 after VAT.

It will be safe to say that consumers in the lower income bracket will not feel the added pressure of VAT since their expenses are usually minimal and on the lower end. However, middle-class consumers (earning more than AED 20,000 a month), who tend to have bloated expenses, are likely to be heavily impacted by this tax. After all, high-end entertainment services, designer products, and other luxury goods and services will now cost more. Let’s look at the effects of VAT on specific products and services:

Utilities and Rent

utilities and rent

Since rent is exempted from VAT, consumers will not find any changes in rents due to tax. However, utilities like water and electricity will see a 5% rise. Therefore, consumers must add this increase to their monthly budgets.

Transport

Transport

Buying a car will become costlier in the UAE. The car prices are already rising and, the fuel costs too. With the addition of 5% VAT, it will just become costlier. Additionally, you will have to spend more on your driver’s license, parking, insurance, and car registration. Fortunately, local public transport and international flights are exempted from VAT.

Food and Beverages

Food and Beverages

Dining at your favorite restaurant or sharing a drink at your watering hole with friends will also get costlier. If you are spending around AED 500 on food and drinks every month, then the addition of AED 25 as VAT might not be too much to handle. However, if you are a foodie and spend say around AED 5,000 a month, then you must prepare yourself to feel the pinch.

Communication services

Communication Services

Communication services also become costlier from January 01, 2018. Mobile phones and phone plans will attract 5% VAT.

Education

Education

There is a mixed bag for parents having children who go to school. The UAE government has exempted tuition fees from VAT. However, textbooks, school uniforms, and trips will all attract the standard 5% value-added tax.

Clothes and Accessories

Clothes and Accessories

If shopping is your de-stressing mechanism, then you would want to prepare yourself to spend a little more to de-stress. The standard VAT of 5% will be applicable on clothes, accessories, shoes, etc. 

Financial Services

Financial Services

Financial services will also attract a 5% VAT. These include bank charges, electronic transfers, etc. Further, you will have to pay a little more to remit funds to your family back home.

Entertainment

Entertainment

Entertainment will be taxed too. Amusement parks, staycations, etc. will all cost five percent more. However, for tourists VAT levied on their purchases will be refunded while they leave UAE.

Also Read: Retirement Planning – How Crucial is it?

Summing Up

Overall, VAT will increase the cost of living in the UAE. However, if you plan your finances well, then you can ensure that this tax has minimal impact on your life. It is probably a good time to assess your expenses and create a budget for the month to weed out unnecessary expenses. Remember, a tax of five percent will not break your bank balance and disrupt your life. Not unless you indulge in unwanted expenditures. Be smart and plan your finances well to overcome this small hurdle.