DUBAI This past week a friend of mine shared his credit card woes. Last month, he topped up his existing personal loan to pay part of the outstanding balance on his two cards, which have high interest rates. He repays regularly and yet, has close to a staggering Dh50,000 to clear.
As he makes an effort to cut down on his spending and reduce the card debt, “something or the other comes up,” he says, which force him to incur additional expenses. And that ‘something’ this month happens to be Christmas. He cannot put off celebrating the day at home and stop himself from giving gifts to his immediate family, he says. It would mean he has to pay for the expenses using his credit cards, he adds.
You can be sure he is not alone in his predicament. It’s close to that time of the year—a joyous one, starting with Christmas and then, welcoming the New Year—when families and individuals take time off to relax and enjoy and, in so doing, feel the urge to spend some amount, if not splurge, on gifts and partying or on some holiday destination. Such feelings hold true for those who decide to stay back here or for those planning to fly to their home country to be with their parents and siblings as well as for others, who are thinking to go on the short trip to a new country.
It is necessary to make a decision that will not throw them off financially and enter into a debt spiral.
“‘What is important?’ to you is a question you must ask yourself,” says Pete Samuell, financial planner at Acuma—Independent Financial Advice, Dubai. “This is very relevant, for those who do not have much disposable income.”
“At first they should establish what they want to gain out of the celebrations, what is required for them to meet their religious needs and what costs are involved,” he adds. “If this method of approach is taken a person knows what they are obliged to do and they can carry out these obligations without any unnecessary expenditure which should remove the need to take any additional credit.”
Gulf News spoke with financial and travel experts to provide you with some advice, which would help you to arrive at a decision on spending matters this festive season.
First, focus on the monthly fixed payments:
Even before you think how much you are going to spend on your celebrations here or abroad, don’t lose sight of your regular expenses. One can’t spend on the former at the cost of the latter. Or, at the cost of the money that you regularly set aside as your savings for the future.
“Using pots of savings might sound like a good idea however this may leave you in the position where you cannot afford to pay for any unforeseen emergencies,” says Samuell.
So, to go about determining how much you can afford to spend this Christmas, the first rule of thumb is to have a budget.
“See what you have and decide what you will spend,” says Steve Gregory, partner at Holborn Assets in Dubai. “Misery comes from failure to budget. Financial misery means spend too much today and repent at leisure.”
“It is vital that all expatriates have a financial plan which includes a “cushion” to cover basic living expenses which are incurred whether you are in the UAE or not, for example rent or monthly bills, and to ensure these are paid without fail,” says Samuell. This includes your credit card, personal loan and mortgage payment. And not to leave out your contributions to your savings.
“Holidays and seasonal activities come every year, so if these are included in your budget, they should not have any detrimental effect of your financial position,” notes Samuell. “Regular savings and plans for the future should never be put aside for the here and now, as it is vitally important that these plans are kept to.”
Then have a Christmas/New Year’s budget:
Part of the budget for those visiting home should be to set out a maximum spend limit, according to Samuell.
“Many find it useful to break down activities planned and to plan a daily allowance to ensure you do not exceed what you can afford to do,” he says.
The three main items of the holiday season budget should include:
Travel—this applies to those flying out—which includes not just the airfare from here to the home country and back, which can be hefty if not booked early, but also cab, train and domestic air costs when you are holidaying or visiting family and friends abroad. These could all add up to make it a big chunk of your total expenses.
ALERT! USING CREDIT CARDS/OVERDRAFT TO PAY FOR YOUR TICKETS:
– Although many people believe that they can cover the cost of travel via credit cards and overdrafts, the issue is that by the following month these living expenses will increase due to monthly statements and minimum payments increasing to cover the additional expense, says Pete Samuell, financial planner at Acuma.
CHECK! ONLINE AND LOCAL TRAVEL AGENTS FOR DEALS AHEAD OF TIME: THAT IS, RIGHT NOW:
– If travelling, get online and check out deals long before you go. Most of the time earlier is cheaper. Last minute is usually top dollar expense. Check with a friendly local travel agent at the same time. “They often know something you will not stumble upon,” says Steve Gregory of Holborn Assets.
-The most common misconception is that the online option is cheaper, says Premjit Bangara, general manager-travel, Sharaf Travel Services. “However there are many hidden extras which come to the fore when you make changes to your travel plans after booking them online whereas local travel companies do not levy steep charges generally for similar changes and enhancements to travel.”
-If travelling, look for dates which enable cheaper fares, says Gregory. For example, he points out that not everyone is interested in Christmas and might travel after it so as to take in the New Year with family. Others may love Christmas and return home at New Year for the cheapest travel tickets.
MANDATORY! TRAVEL AND MEDICAL INSURANCE:
-Bangara strongly recommends travellers to purchase holiday insurance which covers you adequately for delayed flights, lost baggage, theft and medical cover.
“Medical treatment can be prohibitively expensive abroad and all the major insurance providers cover you for this and even provide family rates which add to the cost saving benefits,” he says. They even provide you with toll free 24 hour hotlines should the policy holder require assistance in all continents.”
-Average costs for this cover would range from Dh150 for an individual to Dh800 for a family of four for a month’s travel, he adds.
-Also, Bangara says, check on the health notifications on the destination you are visiting and then take adequate precautions by immunizing yourself with yellow fever and malaria vaccinations prevalent in some parts of Africa and Asia.
Gifts—It comes with the occasion and you cannot avoid it. What you can do is: limit the amount to stay within the budget. At the end of the day, there are expensive and not so expensive presents. It’s the gesture that counts, not the price tag. Also, one can get creative with gifts. With careful planning and a bit of restraint, you can work within a budget and not go overboard and still cover the overall costs, says Samuell.
GIFTING IDEAS WITHIN LIMITS:
Steve Gregory, partner, Holborn Assets, suggests:
– Let everyone buy one gift for say Dh100, wrap it, and then deliver one gift per person at the lunch/dinner.
-Alternatively do a secret Santa, where each family member buys a present for one family member, from a list of things they asked for, and all presents are wrapped and displayed with name tags. A price limit can be set, according to preference of the family.
ALERT! MAILING/SHIPPING GIFTS HOME:
Peter Samuell , financial planner at Acuma, points out:
-Many people will buy extravagant gifts here for people back home, and find they will not be able to send these due to restrictions set by shipping firms.
-Many of these firms will also apply large import taxes dependant on what the gifts are.
– If the gifts are bought online using credit cards, handling fees and delivery costs can also be applied, which can apply pressure to the budget.
Food and entertainment— This item could become a huge one if not budgeted. If you restrict the celebration invite list to your closest family and friends and also, get creative, when it comes to a lunch or dinner and entertainment, costs could be kept under check. For those holidaying in a foreign location, the daily food expenses and treating yourself to various local sightseeing and activities could get out of hand, unless you have a tight control over it.
FOOD AND ACTIVITIES IN A FOREIGN COUNTRY:
-Choose cheaper, yet local (to get a taste of the culture of the place you are visiting) cuisine and select a limited number of activities, rather than the entire gamut of it. Choose the ones you would enjoy the most.
SHARING AND BEING CREATIVE TO SAVE:
Steve Gregory, partner, Holborn Assets, suggests the following ideas on food and entertainment (at home):
-For a party you have organised at home, here or abroad, a nice and a financially savvy idea would be make it a potluck event. Everybody brings something from their home country to eat, and a bottle of beverage. Cost for the host is next to nothing, and cost per guest is something from home that was already paid for.
-Mix it with a fancy dress, and have a letter party. Which letter? How about the letter P? You can be a policeman, parking attendant, politician (ouch) petrol-pump attendant, plastic girl, paper-boy, an Arabian Prince – you decide. Of course you might prefer another letter. Great fun though, and probably no cost. Or just indulge in playing cards or video games or watching together a movie on your TV screen. Or simply chat and share stories.
Cost of spending abroad—According to Samuell of Acuma, this item should be included in the overall budget. When spending money abroad, he says, you should always attempt to get the best exchange rate as well as limiting the charges incurred on your cards.
ALERTS! and ADVICE ON CHARGES:
-Most banks charge a foreign transaction fee for using your card abroad, and many foreign exchanges charge a commission to change cash into a local currency. As part of your financial plan you should investigate the most cost effective way of using your funds abroad, by shopping around for exchange rate quotes to limit these costs, adds Pete Samuell, financial planner at Acuma.
-High charges for using credit cards to exchange dirhams to pounds/euro etc. and hidden handling charges can mean that the costs incurred can be much higher than expected. For cash withdrawals, according to uSwitch.com, debit cards work out cheaper than credit cards.
-Don’t max out on your credit cards. If you do, you will incur hefty penalty. So, the best way to deal with such a problem from arising is to set a spending limit (in consultation with your bank) on your card before you leave the UAE, according to Marcello Baricordi, general manager for Visa in the UAE and head of Global Accounts, who shared his views with Gulf News in August this year.
– It is advisable for travellers carry a mixture of credit cards and cash to minimize the risk of theft on a trip, says Premjit Bangara, general manager at Sharaf Travel Services.