Know budgeting skills to manage money
Managing household budgets can become a tricky affair if not done properly.
By Sunil Kumar Singh
Published Tuesday, April 13, 2010
NRIs need to curtail wasteful spending as an answer to appreciation of the rupee, say analysts. (EB FILE)
Control your spendthrift lifestyle and profligacy before it becomes an albatross around the neck. In case of managing daily expenses, this old wisdom is perhaps more aptly suited. But managing home budgets or household expenses can turn out to be a tricky affair if not managed properly.
Case in point being the concerns of non-resident Indians (NRIs) as the rupee has appreciated in value. Many are thinking to curtail the amount of money they remit for household expenditure to their families in India. But analysts say the solution lies somewhere else. So what is the best way to manage monthly expenses?
Analysts say most expatriates have to go back to their roots and settle in their home country one day. Hence, if they don't have sufficient savings back home they'll have no financial security.
Save first, spend later
The basics of budgeting start with a clear understanding of what comes first – saving or expenditure. However, analysts say a lot of people err when it comes to making a clear distinction between these two.
KV Shamsudheen, Director of Barjeel Geojit Securities, Dubai, said: "A major misconception is that saving is whatever that is left after the expenditure. This notion of saving is completely baseless and if they follow this definition they won't be able to save anything. On the contrary, I tell them to reverse the definition, that is, save first and then spend."
He says another way to manage family expenditure is to scrutinise the monthly spendings and mark out which ones are necessary and which ones are not.
"They should follow an expenditure control chart where they should note down all daily expenses and this suits to all workers – low, middle as well as high-salaried," says Shamsudheen. "Draw three columns – essential, optional and waste. At night, before going to sleep, take a look at the daily expenses and people will find out how much of their daily expenditure is either unnecessary or wasteful.
"People should also stick to a fixed monthly saving amount, which they should write above the chart so every time they look at the chart, it reminds them of the amount they have to save," he says.
Shamsudheen says the concept of micro saving and systematic investment is applicable to everyone. "If a person is saving 1,000 units of any currency every month, the total amount saved after spending 30 years, say in a country like the UAE, would be 360,000 units.
"Whereas, if the person invests this amount every month in any investment scheme, which will give at least 12 per cent return, at the end of 30 years he could get an amount of 3.5 million very easily.
"If the person decides to take the monthly return from the investment for his livelihood after 30 years, he will get a monthly income of 35,000 units. Therefore, instead of saving, an expat working abroad should invest at least 1000 units of the currency of his choice every month," says Shamsudheen.
"Saving alone is not a solution. Many people misunderstand bank deposits as investment. Keeping money in the bank is not an investment, but a safe accumulation of our saving for investment. The bank where you deposit will always give you a partial compensation of inflation and tax and nothing more that. Even if the bank gives you full compensation of inflation it is not enough," Shamsudheen says.
Understanding our real needs when it comes to spending money is the key. "Whatever salary you are getting is your earning and you've have to live within that earning," he says. "If you live beyond your means, you will have to borrow money. We come across many people here who have four or five credit cards. Also, each of their family members uses multiple supplementary credit card that results in wasteful expenditure.
"Spending Dh20,000 or Dh30,000 in Dubai is easy. But people should realise that when they settle permanently in their home countries, how would they maintain the same lifestyle they were accustomed to in the Gulf," he says.
Shamsudheen also says that families of expatriates, when they receive the money, should manage it properly.
The lifestyles of an NRI and a resident Indian are very different. Families of NRIs in India spend more than those of resident Indians. However, there's a need to control unnecessary expenses back home.
"Family members have to realise the suffering and the nature of temporary stay of their breadwinners and therefore they must inculcate the habit of saving for the rainy day, says Shamsudheen, who has conducted many awareness classes for low- and middle- income Indian expatriates on the need for saving and investment.
Barjeel Geojit Securities LLC
Dubai-Abu Dhabi-Sharjah-Ras Al Khaimah
Pravasi Bandhu Welfare Trust
Overseas Contact: Post Box No. 940
Sharjah, United Arab Emirates
Indian Business and Professional Council
Post Box N.o 28336, Sharjah