Smart Tips for Personal Finance

There are many ways to improve your personal finances – small steps can make a big difference.

Last Updated on March 16, 2013 by Taronish Dastoor

There are many ways to improve your personal finances – small steps can make a big difference.

Manage your finances

  • Track your monthly spending on a simple excel sheet or jot them down in a pocket book. Many people do not know how much they spend each month on food, clothing, housing, or entertainment.  Whether you are paying with cash, a debit card or a credit card, calculate your total expenditures at the end the month to gain a better picture of how you’re spending your income.
  • Develop a household budget you can follow.  Using the data you have compiled by tracking your monthly expenses, develop a realistic budget so that it is easier to stick to.  Track how well you follow your budget each month – that means continuing to track your monthly expenses.
  • Be sure to budget for savings. Your savings are a Rainy Day Fund, which is important when unforeseen expenses or emergencies arise.  Be sure to budget part of your monthly paycheck for deposit into a savings account – ideally at least 10% of your monthly salary.  If you find or earn extra money – put that away in a savings account too!
  • Pay your monthly bills on time and avoid late charges.  Take inventory of your regular monthly bills and make reminders for yourself on when each bill is due.  That way you can avoid costly late fees. The best approach is to pay bills as soon as they arrive.
  • Eliminate credit card debt.  Credit cards can make it easy to pile on debt and is the most expensive type of loan.  If your debt increases faster than you can pay it off, you’re likely living beyond your means.  Stop using the credit cards and pay off existing balances – the sooner you do, the less you’ll pay in interest.  And if required, apply for a balance transfer or a personal loan (which has much lower interest rates) to pay off your credit card bill.  In a worst case scenario, talk to your bank and apply for a ‘card restructuring’ – which essentially freezes (inactivates) your card and you can convert the outstanding balance of your credit card into easy payment options (typically one third of what you are charged on an active card).
  • Take advantage of free money.  If your employer offers a contribution match for retirement savings or health savings accounts, be sure that you’re contributing enough to obtain the maximum match amount.  Otherwise, you’re missing an opportunity for free money.
  • Assess your insurance policies.  Insurance is an important tool for protecting against financial hardships, and the premiums you pay can be a major household expense.  Talk with your provider or insurance broker to be sure you have the appropriate level of protection and are not paying too much for coverage.

Make your money work for you

Getting into the habit of saving regularly is easier than it sounds, especially in a country like the UAE where the tax position is favorable and residents enjoy relatively stable income levels.

Make an effort to save. Review your spending habits and try to make every purchase a ‘considered’ purchase. Make every dirham and fils count!

Getting started. Review your monthly expenditure on essentials such as utility bills, food shopping, car costs, etc. and       sum it all up.

Debt control. Credit card debt is one of    the most common debt burdens consumers carry.  You can save a lot of money every month if you make it a rule to try and pay off your outstanding credit card balance every month.  Some debts, like mortgages, cannot be eliminated completely. However, it is good practice to try to accumulate as little financial debt as possible.  No debt means no interest – and no interest can mean considerable savings in the long-run.

Open a savings account. Different banks offer a range of different types of accounts designed to support your individual savings plans.  For example, if you want to save regularly consider a savings account.  On the other hand, if you’d prefer to leave your savings in your account for a longer period and watch it grow, then choose a time deposit that offers you a high fixed interest rate.

Set Spending Priorities. This is linked to making ‘considered’ purchases and managing your expenditure on non-essential items.

Take advantage of sales. The UAE is famous for its shopping festivals and sales.  However, before buying make sure that the sale really is a sale – and not just a promotion to actually get you to spend more! Offers like “Buy 1 get 1 Free”, “50% off” and “Special Packages”, etc. can help you save a ton of money.  Many banks offer credit card privileges on dinning out or buying certain products on discounted prices.  Make use of such offers.

Making a personal budget. All these tips are valuable to getting you on your way to saving, but none can match the importance of establishing a personal budget.  Setting up a budget is the cornerstone of any saving strategy and is essential for both families and individuals.  Once you have a budget, you will be able to monitor your income and expenses, and identify areas where you can cut costs and make savings.

Invest. Once you are able to allocate a part of your monthly income to your savings, you need to think about investing them.  Investing puts your money to work for you and usually gives you the benefits of compound interest; it is integral to ensuring you reach your financial goals.

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