For a salaried person, this may mean starting to save from the scratch. Also, most of us have loans to repay, and any emergency can lead to default. This can jeopardize your credit history as well. Hence, it's necessary to have an emergency fund. Ideally, you should be able to meet about four to six months' expenses in case of an emergency. If you have been falling short on this account, calculate how much your ideal emergency fund should have and start saving immediately to reach the required level.
For an individual to be financially comfortable savings of 4 months’ salary is essential, and for a household with children, the figure needed is at least 6 months’ salary.
Pay yourself first
This thumb rule relates to understanding a simple equation: Income – Savings= Expenses. This means that whatever your income is, you must first set aside money for savings and then start routine and discretionary purchases. This will ensure that you do not skip contributions for essential life goals such as retirement. This can be achieved through systematic investment planning or auto transfer to your child’s saving account.
How it works:
For example, let's assume you bring home AED 10,000 a month. In the pay-yourself-model, saving comes first, not last. That is, you might set up an automatic deduction of AED 1500 (15%) from every paycheck that goes into a savings account. What's left is what you have to pay your bills, your rent/mortgage and all your other expenses.
Other useful Tips
Pay bills on time to avoid late fees, profit rate and penalties. Check your bills to spot mistakes and overcharges.
It is not about how much money you make, but in fact how much money you save.
A good financial plan is dynamic and changes as your life does. Do a review of your budget each month and make adjustments.
Funding a college education is one of the most valuable gifts you can give a child, but unfortunately, it can also be one of the most expensive.
Did you know? Inflation can affect your retirement income by increasing the cost of goods you buy and decreasing the value of your savings. Take inflation into account when calculating your retirement needs.
Plan early for your retirement—it will be too late when you're about to retire. Consider what income you'll need when you retire and how to get it.
Four more strategies to help you get your debt back under control:
1. Get lower profit rates.
Ask your credit card provider to lower your profit rate or transfer your high-profit rate credit card debt to a card that charges less.
2. Consolidate debt with loans
Apply for a debt consolidation loan, since they charge lower profit rates. You can pay your debt off faster if you pay less profit rate, as your money will go towards your principal. The best thing is that you will have only one payment to manage each month.
3. Refine your debt-paying strategy.
Pay off your highest-rate debt first. It may take longer to pay off, but you'll save money on profit rate according to the snow ball strategy. Alternatively, you could pay off your smallest loan first for the satisfaction of having one less bill to pay.
4. Pay more than the minimum.
A lot of people get into the trap of making minimum payments on their debts. Because they did not pay any principal, the balance increases. To avoid this, try applying any bonuses or extra cash you have against the principal. It will reduce debt repayment time substantially.