SEVEN WAYS TO AVOID DEBT PITFALLS OVER EID
▶ Although it is traditionally a time for splashing out, savings can be made this year, reports Deepthi Nair
With Eid Al Fitr just around the corner, it is the perfect time for those celebrating to review their expenses and avoid building up expensive holiday debt.
Given that the world is still caught in the middle of the Covid-19 pandemic and an economic slowdown, financial experts recommend that people are prudent over Eid, not spending beyond their means.
The most common expenses incurred during Eid include the cost of entertaining – catering, restaurant costs, extra groceries for home celebrations and decorations. Buying new clothes, purchasing gifts for friends and family and charity donations are other costs associated with Eid celebrations that can add up quickly.
In the past, Eid was also a popular travel time, with those celebrating visiting family and friends abroad and non-Muslims taking advantage of the public holidays to go overseas.
However, with travel restrictions in place around the world and limits on the number of people who can gather in one place, you do not have to spend as much this Eid.
“As there are restrictions on how many people can gather together both at home and in restaurants, there is less opportunity to host large gatherings,” says Carol Glynn, founder of Conscious Finance Coaching. “In the past, these gatherings would be likely to cost more than this year as large numbers of family and friends could be hosted either in venues or at home.”
Financial experts share their top tips on how UAE residents can cut their spending and avoid going into debt over the the Eid holiday.
Plan ahead
Think forward and make a list of all your possible spending during Eid, says Rasheda Khatun Khan, a wealth and wellness expert and founder of Design Your Life.
Include gifts for friends and family, new clothes, food, charity donations and other expenses.
“This way, you will have a clear mind on what and how you will spend money,” Ms Khan says. “It is too easy to end up getting additional things that can be avoided.”
The next step is to ensure you stay within your limit and take note of everything that you spend.
Beyond the festive season
If you track and review your finances regularly, you will already have an understanding of your monthly financial needs. Ensure you have enough set aside to cover your everyday needs such as rent, electricity and groceries (outside festive celebrations) and regular savings. Only allocate what you have left to your Eid spending, says Ms Glynn.
“Ideally, this review and planning would be done in advance of Ramadan and Eid, so there is time to save each month towards this additional spending.
“This way, you can spend with confidence and without worrying about the impact on your financial situation and without raising debt.”
Have a budget and stick to it
It is important to have an Eid budget in mind so you do not end up spending more than you can really afford, leading to an increase in credit card debt.
“Once you have a figure in mind, assess if it is affordable,” Ms Khan says. “Ask yourself how you will pay for it and if the funds are available. Are you taking the funds from something else that is more important? Once you have decided on a budget, be sure to stick to it.”
It is also wise to set expectations at the outset with friends and family members to limit spending for Eid. “Set an amount with family and friends for a gift exchange,” says Rupert Connor, a partner at Abacus Financial Consultants.
Do not succumb to pressure
People often get caught up in Eid celebrations and tend to spend extravagantly. However, financial experts say it is easy to celebrate without overspending. “Know your values, know your budget and if you are tempted to overspend, think back to your values,” Ms Glynn says.
“Is the purchase really important to you? Will it really enhance your Eid celebrations? If yes, then it is likely to be a worthy purchase. If not, then this exercise will help you come to the conclusion that it’s not worth the cost.”
When people are tempted to overspend, they should weigh the long-term impact of additional spending on their finances. “Will you be paying for this purchase for the coming year, with interest added on and is it worth that to you now?” Ms Glynn says.
Shop online, make a list
People tend to spend less if they shop online with a list prepared in advance. Use the search function on the website to shop for specific products to avoid impulse buying, Ms Glynn says.
“This way you only see the items on your list and are less tempted to impulse buy items you don’t need.
“If shopping online is not feasible, then ensure you have a list prepared before you go shopping. Find the items on your list first and avoid browsing the aisles to avoid temptation.”
It is also important to allocate one or two days to do all your Eid shopping, Ms Khan says. This will ensure you are focused on what you need. It will be easier to stick to your budget.
Take advantage of discounts
Shoppers should also look around for deals, discount codes and special offers on items they wish to purchase for Eid. “But be very careful not to be tempted by discounted items you don’t need,” Ms Glynn says.
She recommends waiting 24 to 48 hours before purchasing something you are unsure about to avoid impulse purchases. If you feel you need it after 48 hours and it is within your budget, you can purchase it without feeling remorse and guilt.
People can also save money by using reward points to purchase items during Eid.
“This means planning where one shops and being frequent there to build up points, which can help make a dent in spending costs,” Mr Connor advises.
Plan now for the next Eid
Once Ramadan is over, review your spending and make a note of how much you spent on each category, Ms Glynn says. “Were you happy with your decisions and where you spent your money? Make a list of any changes you would like to make and set this budget for next year and start saving each month towards next year’s cost.”
Divide the amount by 10 and save that amount in your Ramadan savings fund each month. It is much easier to save a smaller monthly amount than trying to find 100 per cent from one pay cheque. For example, if your budget is Dh5,000, save Dh500 a month for 10 months, Ms Glynn says.
“Planning ahead will give you longer to save the money you need. It is better to put a smaller amount away over a period of time than to find a lump sum immediately. Take it a step further and allocate a monthly budget for your annual Eid expenses.”
It is also a shrewd idea to set up a separate Eid account and automatically transfer a monthly amount to ensure you have all the money you need for Eid Al Fitr in 2022.