We are overridden by consumerism and the need to spend. Many people spend almost as much as they earn, without regard for future expenses and capital creation.
Recently I came across a video that answered two very important questions about savings, in respect to UAE.
WHY DO YOU NEED TO SAVE?
Being a tax-free economy, the government is not liable for our retirement, education or health expenses. In other developed countries, you are taxed up to 35 – 40%, and then your health and retirement are taken care of. As this is not the case for us, we need to save – for retirement, children’s education and health.
Other than that, you cannot create any capital (like house) unless you save (or born unbelievably rich). Also, any unforeseen expenditure (health issue, losses in business, etc.) can only be born by a plump cushion of savings.
HOW MUCH DO YOU NEED TO SAVE?
About 30 – 40% of your income. I know it sounds horribly lot (I barely manage 15%) but considering the number of saving pots in our respective lives, we can only get by saving at least one-third of our incomes.
If you still think it’s too much, imagine what would happen if you were living in the USA, Canada or UK. They current income tax imposed on monthly income is anywhere from 20 – 30% for an average income bracket in these regions. So, what you are saving is actually what you would have been paying in taxes elsewhere.
HOW TO SAVE?
Create an expense sheet, first and foremost. List down all your current necessities and reasons to save. Until your saving objectives are met, live a lean lifestyle. Think about saving first and spending later. Every month, before everything else, put the predefined amount of money in saving pots. And do not touch it for any other reason (retirement funds cannot be used for family holiday – create a separate pot for holidays).
Guys, it’s important to save. I know with my current stack of bills, I am the last person who should preach about savings. So here’s the video that inspired me. Have a look, save and enjoy!
Good to read: