"I am a conscientious spender. I have always tried to strike a good balance between what I earn and what I spend. I am earning much more than what I was earning five years back, but I am not saving as much, as my needs have grown with an expanding family. For an average salaried person like me, can you tell me what should be a healthy savings ratio and what instruments of savings should I be using?"

Your situation sounds typical of a lot of people in the UAE. While you are being sensible with your finances it is very easy for time to pass and before long you can lose track of your savings and the reason you are saving for. This is why it is very important to use the services of a qualified financial consultant and to review your financial situation on a regular basis, which would be at least once a year, if not more frequently, depending on your circumstances. That way you can see how your financial situation is progressing, and can identify areas of concern and discuss ways to reach the goals and aspirations that you have.

As I have mentioned before, but it is worth repeating, the financial review should cover the basic financial planning principals, with the ‘broad concept’ approach. This consists of a series of four questions. Firstly you need to consider where your financial situation is now; then to consider where you would like to be; then to review the options available to you, and finally what is the best option for you today. Once these questions have been discussed and conclusions drawn, we should be in a much better position to move forward.

What is a healthy savings ratio? Well how long is a piece of string? Without being too flippant, this will depend on your personal circumstances and what you are looking to achieve. Are you saving for your children, is it your retirement or any other purpose? As a very approximate rule of thumb I suggest to clients that you consider taking your age, dividing it by 2 and then using this as a percentage of your salary to save. For example if you are 40 years of age, earning 20,000 dirham per month, then you should be looking to save 20% of your salary, which equates to 4,000 Dirham per month.

I must emphasise that this is a very rough guide, but it does at least give you some idea as to a realistic level of saving that will generate a reasonable lump sum to retire with.

Why do we need to worry about saving for our future? If we go back to the three fundamental questions of financial planning, this issue relates to the third part – what happens if I live too long? Statistics show that we are living longer and longer, so how am I going to survive financially once I stop working and earning a living?

This is where saving and retirement planning comes in. The goal is to build a lump sum while you are working so that when you retire this will provide you with the means to generate an income.

So how do you achieve this? There are lots of options to consider, and as part of your financial review these would be discussed in detail. They can vary from simply saving into a bank account, a monthly savings vehicle or some form of lump sum investment.

The bank account is good place to save for your ‘rainy day’ or contingency fund. The funds will be immediately accessible so that you can get to your cash whenever you might need it. Again as a rough guide, your contingency fund should be between 3 to 6 months of your monthly income.

Then you can consider some form of longer term savings, these will typically be a monthly contribution as most people are paid monthly. You can invest a proportion of your income to build a lump sum to use for a variety of purposes, but generally for your retirement. This type of fund can be invested into a combination of assets, ranging from cash to property to shares and will depend on your attitude to risk and how long you are saving for.

Finally, if you have already accrued a lump sum of cash on deposit, you may wish to consider investing this into a range of assets, again with the goal of achieving increased growth to maximise the potential returns on your capital.

This is a very brief overview of the options available to you due to the space limitations for the length of the article. However, each type of investment will have its pros and cons, and will be suitable for some people and not others. Your financial consultant will be able to discuss each option with you to reach a conclusion as to what is the most suitable for your needs.

As always we at Acuma welcome your questions and enquiries directly so please do not hesitate to contact us if you would like to discuss this or any other issue in more detail.