Golden rules of saving money

For most people saving money is not easy. Clearly, it is much more natural to spend money than save it. Since saving is not natural, it is something we must learn to do and work at. Saving money over a lifetime requires conscious effort and continued awareness so that it becomes a habit.



Are you a spender or a saver? Regardless of the answer,
here are the principles for saving money.

Know how much you earn and how much you spend.

The starting point for any savings goal is to understand your spending patterns. Just knowing how much you spend and where you spend your money sets the foundation for a sound financial plan.


Understand the magic of interest.

In exchange for opening an account and giving the bank your money, the bank agrees to increase your money by offering interest every year. For instance, if you were to take AED 100 and put it in an account that offers 6% interest, by the end of the year the bank will have given you AED 6. So, without doing anything, your savings has grown to AED106. At first, interest might not seem like a lot of money. But it grows over time. And it can add up very quickly – thanks to a powerful moneymaking tool known as compound interest.
Compounding has often been referred to as the eighth wonder of the world. Put simply, this is interest earned on interest. Let’s look again at that AED100 in an account earning 6% interest. The AED106 you have after the first year would earn 6% again the next year – AED6.36. After you add that to the total, you would have AED112.36. And that new total will then earn 6% the following year – AED6.74, another increase. As long as you leave the money in there, it will keep earning more. If you left that same AED100 in a 6% interest account for 40 years, you’d have AED1,028, and your annual interest earnings would be more than AED50 per year.
One simple way to see the power of compound interest is through the “rule of 72.” It’s a formula for figuring out how quickly your money will double if left alone in an interest bearing account. All you have to do is divide 72 by the interest rate. So if your rate is 6%, divide 72 by 6. At that rate, it will take 12 years to double your money.


Start savings sooner than later.

Don’t let anything stop you from starting a savings plan. It’s never too late to start & the earlier you start the better are the results.


Pay Yourself First

Next, is to simply get started. Start an automatic savings plan. Have money come automatically come out of your bank account or off your salary. Most people spend first and try to save what little they have left over. The best plan is to save first and then spend what you have left over.



Getting started

How much should you save? Any financial planner can run some numbers and tell you how much you need to save with the right assumptions. The amount matters less than getting a savings plan started. You’ve got to start the habit. Remember something is better than nothing and more is better than less.

Set the targets to achieve along the way

Set the targets to achieve along the way

Determine the milestones on the progress you would like to see. A well defined plan & a disciplined tracking of shortfall will help in actualizing the end goal.

Create a savings plan

Create a savings plan

There are many ways to optimize your savings. Consider splitting money between accounts that are liquid (such as a savings account) versus those intended for more long-term savings (such as Fixed Deposits). Consider using automatic sweep deposits, transfer of money whenever possible to an account bearing interest in order to keep money out of your hands and in a safe place. Know that sometimes easy access to saved money is needed for emergencies, so don’t put all of your savings into vehicles where you’d be penalized for withdrawal. Having a specific target or goal for saving can be a good starting point for a savings plan.

Practical Steps to Saving Money



Types of bank Accounts

Current Account

A current account or checking account is opened at a bank for the purpose of providing frequent access to funds on demand. Current Accounts are meant for convenience of payments & withdrawals; hence they tend not to bear interest. Instead, you can deposit or withdraw any amount of money any number of times, subject to availability of funds. These accounts come with a cheque book & debit card.

Savings Account

A savings account is a deposit account held at a bank that provides principal security and a modest interest rate. Savings account funds are considered one of the most liquid investments outside of current accounts and cash. Savings accounts are generally for money that you don’t intend to use for daily expenses. These accounts come with a debit card.

Fixed Deposit

A fixed deposit is a deposit account held at a bank for a fixed term and amount. These are generally short-term with maturities ranging anywhere from a month to a few years. Fixed deposits offer better interest rates in comparison to savings accounts. When a fixed deposit is opened, you understand that the money can only be withdrawn after the term has ended or by withdrawing pre maturely by paying a penalty.



Getting it clear – Frequently asked questions

This is a fee charged on the account if the balance in the account falls below a certain amount.
This is an account that is used for receiving monthly salary from the employer.
This is the minimum amount required to be maintained in the bank account on a monthly basis
A bank has a specified counter which is manned by ‘Tellers’ who dispense cash to customers across the counter
An instrument that authorizes the bank to withdraw money from your current account and pay either yourself or someone else.
An account that is “in credit” means there is money available to spend.