Zawya - UAE interest rates hiked: 6 ways residents can save more during inflation

Vijay Valecha, Special to The National May 07, 2022

UAE - Financial gurus in the UAE believe inflation is on the rise due to several ongoing global crisis. Experts are urging residents to consider how they handle their finances in a bid to help them balance out rising prices

“One cannot simply ignore the corrosive impact of rising prices on investments. Therefore, we always must be on the lookout for investments whose returns are more than the prevailing inflation rate,” said Rupert J Connor, Partner, Abacus Financial Consultants.

Here's some advice from experts on how to beat inflation.

1. Investments

Investments have been a priority for individuals based on their income. But if you are investing currently, you should be careful. Overlook the accomplishments and returns of any company, product or services, advise experts.

“When looking at investments it is always important to focus on what is the real return or the return net of inflation,” explained Conor.

He also advised residents to invest in equities over the long-term. “It is one of the best ways to stay ahead of inflation. However, equity investments usually carry a time horizon of at least 5 years, sometimes even longer,” he said.

“The compounding impact of such investments over long periods will help you beat inflation by a comfortable margin. Asset allocation is critical, and a portfolio should be globally diversified. This will make a portfolio more stable and less vulnerable to domestic volatility and inflation, added Conor.

Vijay Valecha, Chief Investment Officer, Century Financial said that making investments in the financial markets will help individuals cope by with inflation. “Several asset classes perform well in inflationary environments. Often, Tangible assets, like real estate and commodities, have historically been seen as inflation hedges,”

He also pointed out that families can even consult a financial consultant for right investments, they will double-check the plan and stay focused.

2. Budgeting

Experts also believe that budgeting should be on priority list at this time. If you haven’t budgeted for a long time, then starting up now will save one from a financial impact of inflation.

An Associated Press report mentioned about getting rid of streaming service subscriptions during the pandemic, it also suggested dining out to be limited

3. Put a spending limit on your card

Interest rate hikes from central banks will result in consumers eventually paying more on any revolving debt. Now that rates have been hiked, changes to credit card interest rates typically follow, usually within a billing cycle or two.

“A great tip is to set a limit to how much you can spend on your credit cards. This stops you from overspending and encourages you to reassess your daily expenditures in advance and reduce the interests paid on your loans,” said Valecha.

4. Don’t put off big purchases

Anything you know you want to buy and have the money to pay for may be better bought sooner rather than later in case prices go up. “Over the past year, the cost of cars, home improvement projects and holidays have all risen, and shortages might put more upward pressure on prices. If you can afford to book large purchases now, it may save you cash in the long term,” Valecha said.

5. Locking in rents for longer period

When it comes to rent, the highest expense, Valecha said that if a family is paying an exorbitant rent or mortgage (if it is more than 25 per cent to 30 per cent of your take-home pay) then one might want to consider moving to a new, cheaper residence or refinancing the mortgage at a lower rate.

“The family could also consider locking in rents for a longer time frame to benefit from any further price increase by landlords,” said valecha.

6. Build on sufficient savings

Families should always have sufficient funds to meet any unforeseen events. Ideally individuals should save 25 per cent to 30 percent of their income.

“A family should always have an emergency fund equivalent to six months of their salary to protect themselves against any extreme price moves,”

The AP report stated that when the cost of borrowing becomes more expensive, higher interest rates trickle down to consumer products such as loans and mortgages, making them more expensive.

“But higher interest rates may also apply to deposit accounts, meaning that banks start to offer higher interest rates on checking, savings, and certificates of deposit. No one knows what the future will bring, but by making changes to how you spend and where you keep your money, you may be able to weather times of inflation more easily,” stated the report.

The report also advised on buying bonds for long term savings. Saving cash for short term or for emergency use is indeed a good idea but if you have savings that is not going to be used within the year, then it is advisable to invest in treasury bonds.