Becoming A Saving Guru

our cost of living almost doubled after the pound float, increasing fuel prices and lifting a big portion of subsidies. We are all left wondering what the exact impact will be on our standard of living, the future of our kids and our savings, which have, overnight, dramatically decreased in value.

If we never had a proper financial plan to insure our kids’ future and education, safeguard our savings against inflation and maximize whatever income we bring in, now is surely the time. The key, experts agree, is to find proper investment alternatives to maximize our savings and survive inflation.

“Investment alternatives in general, not only in Egypt, will be somewhere between capital market [stocks trading] or equity market from one side and money market [bank savings] from the other side,” said the financial and risk assessment expert Hisham Abdel Fattah. Normally, when the capital market is in recession, banks offer higher interest rates and vice versa, Abdel Fattah says. The current situation in the country, however, breaks the rule. Abdel Fattah explains that the situation in Egypt now is that banks’ interest rates are high and the equity market is doing extremely well, but definitely at a higher risk. “Egypt is now living in an exceptional period because it is not normal in all the international economies that both returns are high; the capital market returns and banks interest rates,” he adds.

“So you either go to the capital market with higher risk, or you go to the bank and take a lower interest but with zero risk,” Abdel Fattah advises. “The famous economic fundamental is ‘high risk, high return,’ so the choice is yours.” When considering your options, bear in mind what is known as the “risk premium,” which is the maximum level of risk acceptable to shift from a risk-free investment like banks to other higher-risk alternatives that offer higher returns, Abdel-Fattah adds. “Because of the current inflation rates, the average Egyptian now does not have the luxury to risk his devaluated savings in a high-risk investment where he might completely lose his savings,” he stresses. “So as a result of the inflation, security in investment alternatives comes first.”
From a personal point of view, Abdel Fattah believes bank savings, at this point, are better. Investing in capital markets yield faster and higher profits, so you might get 40 percent return on investment (ROI), but you also might lose 40 percent of your money, especially under the current, unpredictable situation in Egypt. On the other hand, banks can generate between 10 to 20 percent, but bear no risk at all. Abdel Fattah says that the current bank interest rates are some of the highest in the Egyptian banking history, which provides a good, safe opportunity for investors.

Financial advisor Mostafa Barakat, however, believes that banks and stock markets are not recommended at the time being because interest rates and returns will be absorbed by the currency devaluation. Instead, he believes the optimum investment in Egypt at the moment is real estate, which is “both, secure and profitable.” Barakat explains that one of investors’ biggest fears is the stability of the currency’s value and so investment in real estate can overcome this issue as property prices increase with inflation, and hence safeguard money against it. “Real estate investment is the fastest investment in Egypt as well.” Barakat argues that buying an apartment and leasing it will mean that you would get a monthly income and the apartment value will increase annually. Your savings will then not only yield monthly returns on investment, but the sum invested will also increase in value over the years. That way, “You can get back what you paid for the apartment within three or four years,” Barakat adds.

In general, the investor must choose an investment alternative that will not scale down as quickly as the Egyptian currency, Barakat argues. “For instance, LE 5,000 saved at the beginning of 2016 is expected to lose 20 percent of its value by the end of 2017,” he explains. So one way of safeguarding your money from inflation is to put your savings in gold and not money to ensure it will increase, and not decrease, in value.

How to save

We often struggle on setting aside money for savings, we always have this extra trip we absolutely need to go on, this video game our kids absolutely need to buy, or even those pair of shoes we have to have. But with the increasing cost of living, saving is becoming even harder, and yet, even more essential.

Abdel Fattah argues that we all need to set a saving plan from the minute we start a family. “If you decide to save whatever is left of your salary, nothing will be left or saved,” Abdel Fattah explains. Instead, make a decision upfront on what portion of your salary will be saved, set it aside monthly, and then set your budget of the portion left of your salary after deducting savings. “Make your own budget and stick to it,” he says.

There is no right formula, however, and each person should set his own plan based on his needs and circumstances. You need to consider recent and future needs like kids’ education and school fees, for instance, and start dividing the sum you will need in the future on the months left until you need them to know how much you should save. If you’re buying a car, for instance, with LE 2,000 monthly installments, you need to factor that into your budget plan.

One tip Abdel Fattah has is to make it hard for yourself to spend your savings. “If you want to save money for your kids, you have to save it somewhere you cannot reach until they grow up,” Abdel Fattah suggests.

Before setting any financial plan, however, you need to first be aware of what you spend if you want to cut it. Barakat says there are many ways to track your money and make your own budget, ranging from going old-fashioned and writing your expenses on paper to using online and mobile tools. But after tracking your spending, Barakat says, it will be extremely easy to make your own budget to help you save for the future.

“People need to plan more as well as rationalize their consumption,” Abdel Fattah adds. He explains that if we take a look at our daily routine, we could easily find several resources that could be saved; things like leaving the watter running for long times, leaving the air conditioner or the television switched on when nobody is in the room and other similar habits cost us more than we think. Abdel Fattah also argues that we need to reconsider the clothes we buy unnecessarily to fit new trends, and cooking more than we need then throwing away the leftovers as opposed to consuming them the next day.
Abdel Fattah advises against taking loans for marriage, education or any other occasion because interest rates on loans are high, and so it is a very costly alternative. “I save my money in the bank with an average interest rate of 17 percent while loan interest rates range from 20 to 25 percent.” Barakat agrees, adding that the first course of action is tracking your spending and creating a budget to save for important stages of life like marriage. “Creating a practical budget is the only way to help you achieve all your life goals, be it marriage, education or any other,” says Barakat.

It is also important to have money saved for emergencies. “Securing funds is not only for your known needs and goals, it has to be for your unknown future needs as well,” Barakat says. This means saving for unpredictable future events so you’re not left looking for loans and paying more interest than you need to.

Budget applications

If this reading has pumped you up to make a financial plan and start saving, you might make use of the various budgeting applications out there. Budget applications are tailor-made to help you save money and track your expenses to avoid penalties from late payment, and know where you overspend and where you can cut back. These budgeting applications are easily installed on almost any smart phone and help you, within a few seconds, set a budget for each item and keep track of your spending on food, clothes, telecommunication and any other label you input. They also notify you when payments are due and help you optimize your budget.

This year, the best budget applications can be connected directly to bank accounts to automatically discover where you spend money, get notifications on bills due date and find out how much money is left for a specific item. Most of the budgeting applications are downloadable for free, and those who are not, do not cost more than a few dollars.
One of the best budgeting applications is Mint, which you could easily connect to your bank account, and it will work on the details of the account then make a budget based on that. The Mint budgeting application is designed with high security standards to ensure that your bank account and your data is fully secured and will send notifications when unusual charges occur as well as giving you the needed tips to reduce the disbursed money and see clearly your budget and personal expenses.

The best budget applications in 2017

•Mint
•PocketGuard
•You Need a Budget (YNAB)
•GoodBudget
•Mvelopes
•HomeBudget
•Wally
•Level Money
•Spendee
•BUDGT
•Unsplurge
•Digit bot
•Albert. et