Spending more than you earn? 5 ways to manage your money

Never live beyond your means, wise people always suggest, but in a day and age when consumerism is rampant, it is very difficult for an average person to stick to her means.

The UAE is a country where most expats come with one goal in mind – save as much as possible before the next venture. However, in a country that is home to the biggest malls and never-ending deals, and with many people, not just in the UAE but across the world, giving in to their urges to live the upgrade culture, many can barely survive without their next paycheque in the account.

If you find yourself in this hand-to-mouth situation, it’s perhaps time to take note. And unless you are nose-deep in debt, you can sort out your financial mess without external help – provided you have the discipline to stick to the plan.

#1 Make a budget – and talk to your spouse

The first and foremost step is to understand your income and expenses. You should be aware of your monthly expenses – ones that are fixed and ones you can juggle. This is called simple budgeting. Sit down with your spouse and discuss what you can call your balance sheet.

Try to ensure that your expenses are manageable. Do keep money aside for a rainy day and even some money that you may wish to splurge. Remember, it’s okay to give in to your spending temptations once in a while, as long as you ‘budget’ for them. It’s no rocket science, but prioritise your expenses. For example, account for rent and utility before allocating an amount to eat out.

Once you document your budget, you can go back to it every week and see where you have gone overboard and rectify it the next week. It’s an old-fashioned trick, but writing your daily expenses is a good way of keeping expenses in control.

#2 Differentiate between good and bad debt

There is a reason why banks check your ability to service debt, and it’s a very basic thing that you should consider as well before approaching a financial institution to lend you more money.

Look at it from a third person’s perspective – what exactly are you borrowing for? Is it a mortgage or some gadgets that you’ve taken on a loan? If you fall into the second category, you are a candidate who might fall into the trap in the long run.

It makes sense to borrow money from the bank if you are building an asset, but think twice if it’s a depreciating one and this includes cars, gadgets or holidays. Don’t fall for the easy paying schemes. For example, if you want to buy a gadget, pay only in cash. Of course, you’ll need to take a loan to buy a car, but closely look at your budget-sheet and see how much exactly can you earmark in monthly instalments without jeopardising the balance, and then work backwards to what car can you buy.

If you have huge sums outstanding on your credit cards, it’s better to take a personal loan and pay off the credit card dues as the interest rates on plastic money can be exorbitant.  Thereafter, service the personal loan with a vengeance and go back to the basics of budgeting.

#3 Credit cards are not always bad

It’s a common belief that credit cards are always bad and those who don’t use it are the wiser lot. The better way is to use it judiciously. Credit cards also mean convenience and many reward points. We would suggest using a credit card at the hospital or at the pharmacy, where you know you cannot cut costs.

However, if you are on a shopping spree one fine Friday in the mall, keep your debit card ready or better still, pay it in cash. You will feel the pinch every time you count the Dh100 notes to give away, and it’s quite likely that you will stop, at some point. Paying by credit card will not necessarily have the same impact as it’s just a swipe.

#4 Save by creating a recurring deposit

For an average salaried employee in the country, it’s not easy to save Dh20,000 in one go but you can save small amounts each month and build up your kitty. If, after, paying all the bills, you are really not left with much saving potential, go back to your budget sheet. Look at small ways you can cut down without impacting your lifestyle much.

Can you stop going to the fancy restaurant twice a month and keep it to once a month? Can you organize your kid’s birthday party at home instead of a fancy place? You’ll be surprised that you can pinch money without really compromising on your happiness quotient.

#5 Never pay in full

In today’s deals and discounts era, not many pays in full, and if you are doing that, perhaps it’s time to sit up and take note. Of late, discount and deal websites have become really popular. Look for deals on food, clothes and entertainment. Here, your credit cards can come in handy. They have many offers that you can take advantage of. But again, use it judiciously. Do you have a good deal on dinner in a fancy hotel and it’s your anniversary? Go for it. But if it’s just another day, then keep the credit card back in the wallet.

[Image via Shutterstock]

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