Five personal finance habits busted by the pandemic

Having an emergency fund to protect your financial health during a crisis has been amplified by Covid-19

Illustration by Mathew Kurian
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Years of economic stability and cash flow predictability have made many complacent about how to manage their personal finances. However, with the Covid-19 pandemic bringing the global economy to a halt, financial fragility caused by salary cuts and job loss has dented household incomes.

In this new financially challenging environment, some old attitudes towards money no longer make sense. Here are five personal finance behaviours that have been exposed by the effects of the pandemic:

Treating your credit cards and overdraft as your emergency fund

Relying on credit cards or an overdraft facility as a back up when things go wrong can cause issues. While some only consider tapping into these funds in a time of crisis, relying on debt to bail you out when you have lost your job or had a salary cut is very risky.

Only four in 10 US adults would cover the cost of a $1,000 car repair or a hospital visit using their savings, according to Bankrate’s January Financial Security Index. The study found 16 per cent would use a credit card to fund expected costs, which echoes concerns from the US Federal Reserve about the country's lack of emergency funds.

At some point, this behaviour catches up with borrowers when they realise they have run up debts they can’t afford to repay, something the jolt of a job loss or salary cut has already illustrated.

“Consumer debt per income has continued to grow and too many consumers have become accustomed to living pay cheque to pay cheque as a way of life,” says Jeff Brown, head of wealth management, HSBC Canada.

The National's The Debt Panel highlights how residents who rely on debt in times of need end up defaulting on credit card payments when their monthly instalments become too high to afford. Stuart Ritchie, director and chartered financial planner with the global wealth advice company AES International, says he advises residents to avoid taking out credit cards and overdrafts.

"Typically, the credit can be double, even triple, what they earn in a month,” he says. "The more expats spend on their credit cards, the higher the charges."

DUBAI, UNITED ARAB EMIRATES. 28 NOVEMBER 2018. A Practical Guide to Financial Independence event, Steve Cronin. (Photo: Antonie Robertson/The National) Journalist: Alice Haine. Section: Business.
Steve Cronin of, says investing in global stocks and bonds to fund your retirement should not be your sole saving goal as those investments must not be relied upon for short-term needs. Antonie Robertson / The National

Making retirement your sole saving objective

Financial experts traditionally advise adopting a long-term savings strategy that focuses on funding retirement. However, the pandemic has underscored the importance of saving for the short-term and for emergencies as well.

Investing longer-term in global stocks and bonds can transform your retirement, but those investments must not be relied upon for short-term funding needs, says Steve Cronin, the founder of, an independent community for financial education in the UAE. “You do not want to have to sell stocks during a downturn if you run out of cash,” he says, stressing the need for “some safety nets".

“In troubled times, you should have a cash buffer of at least six months worth of total expenses, including any mortgage payments on buy-to-let properties in case your tenants stop paying, so you can live without stress for a while if you lose your job or face an unexpected bill,” says Mr Cronin.

It’s prudent to also have a medium-term plan looking two to five years ahead “for any major expenses on the horizon, including university fees, a house deposit, a new car, or a wedding, and build up a cash fund for each over time”, he says.

Savers should also consider a “sidecar option", creating a little sleeve in their retirement bucket in which to squirrel away money for emergencies while also saving for the nest egg.

Rather than just focusing on investments, Mr Ritchie says “it's far better to put aside a portion of your salary every month towards an emergency fund [as] a comfortable cushion when times get tough".

For every Dh500 saved for retirement, for example, consider socking away Dh100 to meet the exigencies of life, he adds.

Taking out a big mortgage to buy your dream home

Stringent regulations in the Emirates mean residents are less likely to be financially overextended if they take out a mortgage to buy a residential property, says Arran Summerhill, director of UAE mortgage broker Holo. However, even the best borrowers can get caught out by a pandemic.

“This would, of course, change in the current climate if the owner was to suffer a salary reduction or a loss of job or if they look to finance the purchase costs through additional lending,” he says, adding “this is something that we do see happen".

It is important, therefore, to ensure the size of the loan doesn’t become a crippling financial burden, says Mr Brown of HSBC Canada, who says the pandemic has left many borrowers across the globe "uncertain of the future of their ability to remain in their homes".

Using debt to finance everyday spending

Using credit cards to fund a lavish lifestyle, or even everyday expenses such as groceries, is a spending trap everyone should avoid, says Chris Davies, a chartered financial planner at The Fry Group.

“When looking at maintaining a lifestyle through the use of debt, the compounding of interest can quickly rack up and turn a small manageable amount of debt into a difficult situation,” says Mr Davies, adding that bigger “issues can be triggered if an individual loses all or part of their income".

Average annual interest rates on UAE credit cards hover around the 40 per cent mark, according to UAE financial comparison website

While there may be valid reasons for using debt in an emergency, unpaid obligations reduce the flexibility “to quickly leave the UAE should someone need to", says Mr Davies.

The spread of the buy now, pay later concept has promoted overindulgence and made consumers careless with their finances, cautions Mr Brown. “Everywhere we look, and everything we do, there are opportunities to spend in front of us on things we really don’t need."

Spending heavily to stay healthy

You do not need an expensive yoga studio membership, a healthy eating food delivery service or a state-of-the-art gym to stay healthy and achieve personal growth. The one thing the lockdown has unlocked is the wealth of free online resources available – from yoga and meditation tutorials to home workout videos – on platforms such as YouTube and Instagram for those looking to boost their health.

“Nearly 80 per cent of benefits for your mind and body come not from paying money for organic avocados and smart fitness machines, but from actually putting in the work,” says Mr Cronin.

The movement restrictions forced many of us to find “improvised weights such as a heavy box and a big bag of lentils, costing almost nothing", he adds.

For UAE residents, there are “yoga experts like AmandaYogaFlow and Shimi's Yoga running free classes and fitness experts like The Physical Training Company beasting people in group Zoom sessions", says Mr Cronin.

For those feeling stressed, Dubai resident Neha Duseja’s self-care classes and has curated a huge list of free courses by leading online learning providers for those looking to stay sharp and boost their credentials, he adds.

While the lockdown prevented residents from eating out, it also forced them to “learn to cook, bake and barbecue, and eat in ways that are both healthy and economical", says Mr Brown.

Much of what we’re doing to stay healthy now was already accessible. It’s only when the pandemic necessitated extreme budgeting that these pocketbook-friendly options became serious considerations. “The challenge of staying healthy while at home is the self-discipline needed to just do it,” Mr Brown says.