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Consumer Education and Awareness

 

Consumer Education and Awareness

 

1. Budgeting 

 

Why the Budgeting is important, what’s a good Budget?

Setting a budget offers several advantages, such as developing a spending plan that suits all income levels, providing a surplus of funds for emergencies, offering a clear understanding of the short and long-term financial expectations based on the present financial situation, preventing the risk of falling into debt, and encouraging a financially stable future.

Steps of Creating a Budget:

- Set goals: Clearly define your financial goals. For example, if your goal is to save money for a down payment on a house, break it down into smaller steps, such as saving a specific monthly amount. But if your goal is to buy a car, compare costs, models, and features. Use the projected savings from your monthly surplus to choose the best fit and create a timeline for saving or research financing options.

- Record all income and expenses: Keep track of all sources of income and all expenses on a monthly or recurring basis. For example, list your monthly salary and any additional income from freelance work, and record expenses like rent, groceries, utilities, and transportation costs.

- Categorize essential expenses and non-essential: Distinguish between necessary and discretionary expenses. For instance, rent, food, and medical expenses are essential, while dining out, subscription services, and entertainment are non-essential.

- Create a budget: With your financial data organized, create a budget. Prioritize your expenses and make sure they fit within your income limits. For example, allocate a certain amount of money to rent and utilities before allocating money to discretionary expenses.

- Stay disciplined: Follow your budget and monitor your income and expenses closely. Adjust your budget as needed to ensure you stay on track. For instance, if you go over budget on dining out one month, adjust your budget for the next month to compensate.

 

Example: Let's say you have a goal of saving AED 30,000 for the year-end holidays. You would break it down into monthly savings of AED 2,500. You would record your monthly income from your job and any additional income from side hustles, then list your expenses such as rent, groceries, utilities, and other bills. You would categorize expenses as necessary or discretionary and prioritize saving for the vacation over other discretionary expenses. Finally, you would follow your budget each month, adjusting it as needed to ensure you reach your savings goal.

2. Credit and Finance

Credit and financing can be helpful when done wisely and prudently. Wise and prudent financing means getting external financing to meet short-term or long-term obligations with repayment at a specific date while reducing financial risk. For example, a student finance for education expenses is wise finance, as it helps invest in future career prospects while managing finances responsibly.

Debt management is reducing existing debt burdens through strategic planning and budgeting. For instance, combining multiple finances of Ijarah deals into a single finance with one instalment and a lower profit rate, called debt consolidation, can make it easier to repay and manage debts. 

Profit payment is the growth of money resulting from its use in Sharia’a compliant investment activity, expressed as a lamp sum  or a percentage of the total finance amount. For instance, when taking out a car finance, the customer will pay profit on the principal amount.

The maturity date is the date by which the customer is expected to settle the entire finance amount, including any accrued profit. For example, a real estate finance typically has a maturity date of 15-30 years, during which the customer must make regular payments towards the finance until it is fully settled.

 
3. Debt management

Debt management refers to the process of effectively managing your debts to avoid falling into financial difficulties. This involves taking proactive steps to meet your financial obligations, pay off your debts on time, and avoid accumulating additional debt.

As a bank customer, it's essential to understand the importance of debt management and to take steps to ensure you manage your debts effectively. Here are some tips to help you manage your debts:

Create a budget: One of the most important steps in debt management is creating a budget. This will help you understand your income and expenses and help you identify areas where you can cut back on spending to reduce your debt.

Prioritize your debts: It's essential to prioritize your debts to ensure you're paying off the most important obligations first. This may involve paying off high-profit debts first or paying off debts with the largest balances.

Make timely payments: Late payments can result in implementation of donation to charity clause, which can make it more challenging to pay off your debts. Make sure you're making timely payments on all your debts to avoid these additional sums.

Seek professional help: If you're struggling with your debts, seek professional help. This could involve working with a credit counsellor from your bank or debt Management Company to develop a plan to pay off your debts.

Avoid taking on additional debt: It's essential to avoid taking on other debt while trying to pay off your existing debts. This may involve avoiding new finances until you've paid off your debts.

4. Saving 

Saving means having money left over after paying for essentials like rent, food, and transportation. It's important to plan and track expenses to save money every month. With a savings plan, people can build up a cushion of money for a more comfortable future.

The importance of saving

Saving is essential for three reasons. It helps people be ready for unexpected expenses like health needs or if they need to buy something important suddenly. Saving can also help people plan for future expenses, like a down payment on a house or a new car. Finally, saving for retirement is essential to ensure people have enough money to live on when they're not working anymore.

Types of Saving Products

Different types of saving accounts are available, including ones where people can add money regularly for short-term goals and others where they can invest some of their savings in an investment fund. Some accounts let people transfer a fixed amount of money each month from their current account to their savings account. There are also accounts for family goals and even ones where people can invest in gold to make money over time.

Tips for a Secure Financial Future

- To have a secure financial future, people should make a budget plan that keeps track of current and future expenses. They should also have a long-term strategy, consider paying off debts, follow their savings plan, and set up automatic savings transfers to avoid spending too much. Experts recommend saving between 10% to 15% of monthly income and separating necessary and unnecessary expenses to reach savings goals. Banks can help by automatically transferring money from a person's checking account to their savings account or investments to make saving easier.

- Understanding the basics of investing is crucial for anyone looking to build their wealth over time. Investing involves purchasing assets that generate income or may increase in value over time.

 

5. Benefits of investigating

- Financial guarantee: Investing in a diversified portfolio of assets can increase financial security by providing multiple sources of income with varying risk profiles. This helps increase savings at a pace that suits everyone.

 

- Wealth creation: By investing part of your monthly savings in assets like Sharia’a compliant shares or Islamic investment sukuk, you can increase your wealth faster.

 

Difference between Islamic and non-Islamic investments 

What sets Islamic investments apart from non-Islamic ones is how they generate profit. In Islamic finance, profit is generated through asset-backed investments, where investors receive a share of the profits earned by the underlying assets rather than through interest-bearing debt financing.

On the other hand, non-Islamic investments often rely on debt lending with interest payments. This can lead to an uneven distribution of business risk, where the investor bears disproportionate risk.

Islamic investment products, such as suck, syndicated facilities and project financing are all structured by Sharia principles and are backed by assets, making them more stable and equitable for all parties involved.

6. EIBOR- Emirates Interbank Offers Rate

What is EIBOR, and why is it always mentioned in real estate transactions?

Emirates Interbank Offers Rate (EIBOR) stands for Emirates Interbank Offered Rate. It is an interest rate used as a benchmark for lending between banks in the United Arab Emirates. EIBOR is calculated daily based on the rates at which banks offer to lend money to each other. 

When it comes to real estate transactions, EIBOR is often used as a reference rate to determine the profit rate that customers will pay on their finances. The EIBOR rate can be fixed or variable, depending on the real estate finance terms.

 In a fixed-rate real estate finance, the profit rate remains unchanged for the entire finance term. In a variable-rate real estate finance, the profit rate is linked to the EIBOR rate, meaning that it can go up or down over time, depending on changes in the EIBOR rate.

Banks mention EIBOR when advertising their real estate finance products, as it is a commonly used benchmark for real estate finance in the UAE. It is important for customers to understand how the EIBOR rate affects their finances, as it can have a significant impact on their monthly payments and the overall cost of the finance.

 

 

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