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Financial Awareness: Money and Transactions

Money Value

Prior to making the decision of borrowing money, it is important to first decide not to buy the things that we want.

A question to put things into perspective is – “do I really need this?”. For expenses that are not mandatory nor essential it is a good habit to save for them, creating short- and long-term goals and saving until one has enough money, instead of borrowing.

A reason to borrow money is if it would take a long time to save up enough money to buy the item needed, and it is required straight away. However, if that is the case, one should ensure you have enough future income to pay back the debts. A Debt is an amount of money borrowed by an individual as a method of making large purchases that they could not afford under normal circumstances, and you need to have enough income to pay it back.


Income is money received and it includes money coming in from all sources, both earned and unearned.

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    Earned Income

    From work on either an employed or a self-employed basis

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    Other Income

    From any source that is not work and includes:

    • Rental income
    • State and private pensions (monthly)
    • Benefits (weekly, once every two weeks or monthly)
    • Interest on savings (monthly or, once a year)
    • Returns on investments such as dividends (once or twice a year)
    • Allowances paid by family members (weekly or monthly)
    • Financial gifts that may be received on birthdays, Eid and other celebrations
    • One-off payments, such as an inheritance or a money prize
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Value For Money

A big concern for most types of spending is getting value for money. This does not always mean getting something at the cheapest price, the cheapest item might lead to a ‘false economy’. Value for money is defined as the most advantageous combination of cost, quality and sustainability to meet your requirements.


Money and Currencies

The meaning of money:

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    Anything that is widely accepted as a means of making payments’, coins, notes and the electronic balances held in bank accounts
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    Cash is used to make a payment
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    Most money is in the form of electronic balances in bank accounts. People can also instruct their bank to pay some of the contents of their bank account to someone else
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    The UAE dirham has been fixed at a rate of 3.6725 to $1 since 1997
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    All the GCC countries, excluding Kuwait, have their currencies pegged to the US dollar
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UAE

In 1973, the UAE Currency Board issued the nation’s first banknotes. In 1982, the Central Bank of the UAE released a second issue of UAE paper currency, following the transition from the UAE Currency Board to the CBUAE, instituted by Union Law No. (10) of 1980. As a result of this transition, the current CBUAE banknotes - which are familiar to us today - replaced the previous issue of UAE Currency Board notes. Alongside currency used for everyday transactions, the CBUAE also mints commemorative coins to celebrate the many highlights and achievements of the United Arab Emirates.

Source: https://www.centralbank.ae/en/our-operations/currency-and-coins



Financial Planning and Informed Choices

Medium- and long-term financial planning is done because people want to achieve their aspirations and to finance life events. Examples of planned events include the following:

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    Life Events

    People anticipate and plan for major events such as going to university, buying a car or a house, going on a world cruise, having a big wedding, starting a family and making provisions for children, or moving abroad.

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    Retirement

    People hope to live long enough to retire and to enjoy comfort and leisure in their old age. They need to save in a pension fund or long-term investments over a long period of years in order to have sufficient income when they stop work.

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    Death

    Someone who does not have a family might not feel a need to make plans for this final event. However, someone who has a spouse, children or other dependants needs to consider how their death might affect others financially and they should make plans accordingly. They may want to ensure that their dependants have an income after their death, that their debts will be paid off or that they can leave an inheritance to their children or grandchildren.

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Emergency Fund

People can use the extra income to make sure they have savings they can access instantly in an emergency. Recommended emergency funds are equivalent to mandatory and essential expenditure for three months. However, people with expensive debts need to consider having a smaller amount of savings and repaying their borrowing.