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No matter what your age is, keeping the right track of the various responsibilities that are thrown your way can be slightly overwhelming. Take this one from the people who have been there and well, done that. In the initial year of working, many young individuals out there think that they have all sorted and figured out. However, what many of us have in common is the mistakes that we make along the way and these mistakes have quite a lot to do with how we manage our finances.
Many of us after crossing these initial years think “if I could just go back in time, among few of the things I would like to change is majorly the way I chose to spend money.” Those days back then were days without any proper adult bills or EMI payments. Wherein, almost all of us spend our money on anything and everything we lay our eyes on. However, it is not the best thing to do.
No matter what your age is, managing your finances can be a tough task, so your 20s are the perfect time to build strong financial foundations.
Here is a list to follow in order to keep as much of your money in your pocket as possible.
Once you start your career and start to earn money, it is a must to have a bank account. On top of this, having a savings account is pretty important as well. Setting aside a particular amount of money every month allows you to have cash in hand for any emergencies that might arise, along with limiting your capacity for spending. It is important for you to start small and with time, your funds tend to grow.
Having a savings account at hand is like having a financial safety net that you did not even know you needed and it also plays a major role in helping you plan for the future.
When you just start to work, at the very beginning of your earning journey start to keep aside about 10% of the income you earn. As you continue earning and you figure out what your spending habits and pattern look like, you can start adding to this percentage and putting aside maybe 15% or 20% of your earnings. The best thing to do for yourself is keeping aside 30% of your income and leave it completely untouched. This will lead to you saving quite a huge amount out of your salary within just a year.
Before you move onto creating a budget for yourself, ask yourself the amount that you desire to have after a fixed number of years, say after 5 and 10 years. Consider any specific causes that you might have that require you to save for them. Then move onto budget your life depending on these. It is very important to live below your means when you are young and especially not to spend all of your earnings. Instead of resorting later to borrow funds for the big occasions via opting for a personal loan in UAE and paying the personal loan interest rate in UAE, start saving well in advance when you can.
It is essential to know the ratio of the amount you earn as to the amount you spend. If you are someone who is living with family, the costs incurred by you are pretty different the costs of a person who lives alone or with a roommate. Allocating the required funds towards the important expenditures such as rent, water, electricity, transportation, and food, will help a person group the funds he or she earns towards the savings account as well as the other miscellaneous expenditures.
You should first start with planning for the expenses that are mandatory and then move onto expenses that are general in nature.
The key to healthy finances is definitely making a budget and spending smartly. While, some months can prove to be comparatively expensive than the others, maintaining a budget as a record of where you spend your money can help you track your spending pattern and examine where your funds are actually going. Many young people out there do not believe in sticking to a budget plan when they start out, but having one and sticking to it will help you in allocating your income so that you can invest where it is needed.
On top of this, you should keep a copy of your accounts’ statements and review them regularly so that you can keep a constant track of your expenditures and highlight any spending that can be avoided and are not needed.
The most primary rule of preparing a budget is to be a realist about your money, especially if you are aware of the months wherein your expenditure is ought to be more than the usual. If you are earning a lower income, it is best not to set targets that are not realistic. In such scenarios, you are likely to spend most of your funds on essential categories such as regular utilities so it is best not to set a budget that is not likely to work for you.
Credit cards are no magical cards that make funds appear out of absolutely nowhere. Credit cards are considered to be the worst manner to spend money. The rates of interest charged on cards in the UAE are pretty high. However, a fact that cannot be denied is that we require these plastic cards to pay for certain things. They also help in maintaining a credit history in the country that you are residing in.
You should be aware of the fact that you do not actually need more than one credit card in life. The higher the number of cards in your wallet, the higher is the false sense of your purchasing power. If you just pay back your minimum balances, you are leading yourself into a situation wherein you are charged about 70 to 80% in financial service charges that the banks' levy, bringing absolutely no reduction in the overall principal amount.
For instance, many of the banks out there charge a 2% fee on your credit limit. So if you have an amount of AED 100 pending on your card and your credit limit is originally AED 15,000 – the fee levied comes out to be AED 300 that is more than your outstanding dues.
Try and use cash or your debit cards wherever you can – these will also put a limit on your purchasing power. If you are someone who uses a credit card for regular expenditures such as groceries make sure to automate the entire repayment in the same month. Also, try to get a credit card that is free for life and has no annual membership fee.
If you must use this source of money, make sure not the max out your limit and to be diligent when it comes to paying your outstanding bills completely. This will help you save huge amounts of money in terms of late payment fees and interest charges. The interest that is charged on the credit cards in UAE is said to be higher as compared to those in the UK, Japan, most of Europe, and the States. You can choose alternatives such as moving your balance to a balance transfer credit card with a low introductory APR, or by opting for a personal loan in UAE that offers a low personal loan interest rate in UAE in order to help reduce the overall borrowing cost and also quicker payments.
If one thing about life is certain it is the unpredictability. No matter how much you try to plan for the coming future, something or the other needs to be left to fate. Having at hand emergency funds helps in reducing the ambiguity of life. Some people choose to maintain a savings account and consider it as money that is frozen or forgotten. Whereas, others might choose to have alternative savings accounts that give them liquidity when needed.
For instance, if someone withdraws an amount of AED 1,500 every month and AED 100 is left behind from this month, it is kept separately aside. In this manner, every month there will be an amount that is kept aside that is unused – it can be put towards a fund maintained at home itself and can be used for months when the expenditures might be more than the others.
If you find yourself deviating from the set budget more than often, then you better give yourself a good reality check. In this market with the increased popularity of professionals, it is easy for one to be replaced and lose their job. You should consider an unfortunate situation where you might find yourself unable to pay for your rent or other expenses while you look for a new job.
Your shopping spree won’t seem that important in such situations. It is good to be a little pessimistic every now and then and think about difficult scenarios. If you are without any saving funds and you are spending whatever you earn in a month, you are causing yourself to be vulnerable to many scenarios. This will help you think of your future in a better manner instead of just focusing on now.
The Bottom Line
You should bear in mind that when you are independent financially you are completely in control of your needs and wants and you do not have to be dependent on anyone else. You can help your dear ones, or pamper yourself without having anyone to answer. This is the sense of power one requires to come on track and a proper budget as of today.