Budgeting! Holy grail of personal finance!?

Is budgeting worth it?

If you’re looking for a solution to your debt problems, the most important thing is to find the right solution. Some debt solutions are suitable for big debts; others for small debts. (And ‘big’ and ‘small’ mean different things for different people, depending on their overall financial situation.) When I am with my friends, I usually ask them some personal questions on the finances. At least 50% say they have problems with debt and that they are not able to control their expenses. And these are friends who I believed were well settled in life with good income and in DUBAI!!

I was not immune to this. I have been in Dubai since more than 10 years now and I did not have the discipline to save money regularly and audit my expenses. Although I was earning good, I did not keep a track of my expenses. It only dawned upon me after few years that I have lost a lot of time by not budgeting my finances. And since then I took a conscious decision of budgeting my personal finance. I sat down and took stock of all my regular expenses and where I could save money and how I should invest. And since taking this decision, I am proud of myself and have been able to considerable save money and invest. This helps in 2 ways, you now have the capital to invest and you now have the returns from these investments.

It’s always worth talking to a debt adviser about your finances – but if your debts aren’t too serious; the best debt solution may simply be learning to budget more effectively. You might be surprised how quickly you could solve your debt problems if you really put your mind to it.

how to budget

How much could you save in 6 months?

Have you ever spent 6 months saving – really saving? 6 months isn’t such a long time, but it could be long enough to let you make a serious ‘dent’ in your debts.

So the question is: “How much money do you spend on luxuries – money that could be going towards your debts?

A) What kind of luxuries do you buy?

It’s not an easy question to answer, so try listing the ‘Top 5 Unnecessary Things’ in your weekly spending. Make a distinction between ‘need to have and nice to have things.’ For many people, that list might look like this:

  • Socialising;
  • Clothes;
  • Eating out / takeaways;
  • Streaming services.

(If that list doesn’t sound right for you, just write your own.)

B) How much do you spend on those luxuries?

Figure out how much you spend on your Top 5 in one week.

Add up the numbers and multiply the answer by 6.

That’s what you could save in 6 months – just by giving up 5 things. If your debts aren’t that serious, this could be enough to clear (or dramatically reduce) them.

C) How much of that money could you save?

If possible, try to spend nothing on any of these luxuries. It’ll take a lot of willpower, but that’s how you’ll make the biggest dent in your debts in the shortest time.

If you don’t think you can cut out on luxuries altogether, try cutting down by 50% – basically, resist every other temptation to spend money on things you don’t need.

(Just make sure you don’t compensate by spending more on other things!)

Tip: The best way to stay motivated is to keep a log of the money you’re saving, so you can see that all those sacrifices are worthwhile.

D) What debts should you clear?

Use the money you save to pay off things like credit cards and overdrafts, which you can repay as fast as you like – they don’t come with ‘early repayment charges’, like some loans do.

Remember that debts grow all the time. If you’re paying 19% interest on your credit card, paying an extra AED 100 today will have the same effect as paying AED 119 in 12 months’ time!

E) Was it worth it?

After 3 months, take a look at what you’ve achieved. Hopefully, it’ll be enough to encourage you to keep on like this.

Basically, ‘tightening your belt’ is always worthwhile, whether your financial situation is great, OK, or terrible. However, it isn’t always enough. If your debts have reached the point where you can’t even make your minimum monthly payments, you should seek professional debt advice as soon as possible.

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