Financial security is becoming more accessible in the UAE with the developments in mobile banking, online payment solutions, and digital wallets. This creates an opportunity for each one of us to take control of our financial future.
As a step towards achieving financial freedom, financial planning acts as a roadmap, helping us navigate through the twists and turns that might come our way. Although we all possess a unique financial appetite, here are five fundamental steps to guide us through our financial journey.
Assess your current financial situation
As a first step toward financial planning, it is essential to have a clear picture of our current financial status. This involves:
- Evaluating your cash inflow: Consider all income sources, including investment earnings and interest.
- Tracking your expenses: Analyse finances by categorising them into fixed (rent and utilities), variable (groceries), and periodic and seasonal expenses (holidays).
- Checking your net worth: Assess this by subtracting liabilities from assets.
These insights will help us understand our financial strengths, weaknesses, areas of improvement, and also aid with better wealth management.
Set clear financial goals
A financial goal is similar to setting the destination for a journey and it takes into account our financial situation, priorities, and values.
Generally, financial goals can be divided into three broad categories:
- Short-term goals: Goals achievable in a year like credit card payments, buying a new gadget, or creating an emergency fund.
- Mid-term goals: Goals that we can achieve in three to five years such as loan repayment, insurance coverage to protect our loved ones from unexpected situations or saving up for a dream vacation.
- Long-term goals: Goals that would take over five years to attain such as repaying mortgage or securing a comfortable retirement.
It is also beneficial to consider the SMART framework– specific, measurable, achievable, realistic, and time-centric- while setting goals for your financial plan to help make them practical and even attainable.
Create a budget that works for you
A budget acts as a fuel to reach our financial goals as it creates balance by helping us keep track of our expenses and allocate our financial resources thoughtfully. One of the most common budgeting approaches is the 50-30-20 budgeting rule, where:
- 50% of our income goes towards essential living expenses (like housing)
- 30% towards your non-essential expenses (like dining out)
- 20% to your savings and investments (like mutual funds)
Remember, it is integral to be flexible while setting up a budget as we might have to customize them based on specific requirements, our priorities, and financial goals.
Be prepared for the unexpected with financial planning
Life is unpredictable. Therefore, it is essential to be prepared for any roadblocks. To ensure stability during setbacks such as loss of employment or an unanticipated expense, we need to have:
- An emergency fund: Set aside three to six months of living expenses to help stay on track despite facing personal challenges.
- Protection in the form of insurance: Life insurance in particular can protect us and our loved ones during uncertain times.
Allocating a percentage of the income towards emergency funds and insurance coverage can help you stay on track when it comes to achieving your financial goals. Find out about how Salama can protect you and your loved ones here .
This Financial Literacy Month, let us take charge of our financial wellness with Salama’s #LetsMakeAprilCount drive. Follow us on our social media for valuable insights and exciting financial challenges to stand a chance to win exciting rewards!
Smart wealth management through savings and investments
Investing is key for making your money work for you. Based on income, age, personal commitments, values, beliefs, financial goals, and risk appetite, we can explore different wealth management options.
Low-risk options include fixed deposits and savings accounts which are a more secure way to invest while high-risk investments are more volatile and offer higher and quicker returns.
Investing in a blend of low-risk savings and high-return investment options like mutual funds, and stocks provides a mix of security and risk can create a balanced approach while investing.
To gain a thorough understanding of investment options, it is ideal to consult a financial advisor to gain more expert advice that aligns with your financial appetite. Whether it’s based on your own research or from professional advice, it is integral to constantly review and evaluate investment strategies to make sure we are not deviating from our path toward financial security.
Thus, by taking charge, we can confidently optimize our financial planning to achieve our wealth management goals. Start today- assess your financial situation, set SMART goals, seek expert advice and take small yet consistent steps towards a secure financial future.
