Before you get started
Before you start planning on how you can improve your finances, you need to know how much money you spend on an average every month on the below key expenses:
- School education expenses
- Monthly living costs
- Credit card bills
- Insurance (life, car...etc.)
- Car maintenance costs, fuel costs as well as public transport
- Leisure expenses such as shopping, eating out, ordering food, gym memberships...etc.
- Other big ticket expenses such as holidays, travel...etc.
- Investments, if any
- Miscellaneous expenses
To help you log in your monthly expenses you can start by using a simple excel sheet and tracking and categorizing all your spends. You can also use several free budget planners such as the Moneyhelper Budget Planner or the Excel spread sheet from Money saving Expert https://www.moneysavingexpert.com/banking/budget-planning/#planner
Just the simple act of tracking and monitoring your monthly expenses will work wonders in starting to build discipline in your spending habits.
Get your budget back on track
If you realize you are spending more than you are earning, you need to identify areas where you can reduce your expenses.
As a start, identify wasteful expenditure and start reducing your spends on the same. This might be as easy as making your lunch at home or cutting down on the number of coffees you have at cafes or cancelling a gym membership and instead working out at home or at the park. Once you start tracking your expenses, you will easily realize what you can cut down on and save more.
For most UAE residents, rent, education and household expenses constitute the majority of their monthly expenses. If you are struggling with your expenses, you need to take a hard look at all 3 categories:
Rent: Can you look at downsizing your home and reduce your monthly rent?
Education: Can you look at a cheaper school without compromising on the quality of the education?
Household Expenses: Identify and cut-out wasteful and unnecessary expenditure
Finally, cut down on impulsive spending. Follow the below 3 step rule before making any big or impulsive purchase. Ask yourself these 3 questions and only buy if you answer Yes to all three.
Do I really need it?
- Can I afford it?
- Can I live without it?
Pay off loans and credit cards
If you have loans or owe money on credit cards it usually makes sense to pay off the debt that charges the highest rate of interest first. Examples include:
- Personal loans from the bank
It is important to make sure you don’t break the contract terms of your agreements. So even if you’re focusing on paying down another debt, you must cover at least the minimum payment on any credit cards and your monthly required payments on loan agreements.
Set a savings goal
Instead of letting your expenses dictate your monthly savings, set a monthly savings goal and then plan your expenses around it.
Instead of calculating your savings as
Income – Expenses = Saving, turn the equation around to
Income – Savings = Expenses
This will help create a financial discipline and help you save money on a regular basis and build a financial cushion for any unforeseen emergencies in the future.
Investing your savings
As your savings start to grow, you should put more money into investments and retirement plans to ensure you get a regular income for you to live comfortably, even after you stop working. Remember, the earlier you start investing, the better will be your long term returns.