The region’s economy has been through the wringer lately, and with pay rises from employers sometimes limited, many UAE residents are looking for ways to cut back on their expenses. Making sure you have a little extra money stashed in the bank is more important than ever. Saving and finding creative ways to generate extra income can mean the difference between feeling out of control and maintaining financial control. Here are five ways to save money even when money is tight.
1. Create a budget and stick to it
For many, even hearing the word “budget” is stressful. Budgeting does not need an advanced accounting degree. A personal budget can be easily created with a simple spreadsheet, using Microsoft Excel or Google Sheets or even a pen and a paper, and listing all financial obligations and the respective amounts. When creating a budget, make sure the amounts are as accurate as possible and that the budget has clearly labelled categories.
I recommend monthly budget sheets. A yearly budget will not reflect the varying expenses over the months. With a monthly budget you can more accurately adjust your expenses to reach your targeted savings goal and get into the habit of reviewing your budget regularly so you aren’t making frivolous purchases. Take a good look at the numbers so you know how much you have to spend on certain items each month. Whether you’re buying groceries, petrol, new clothes, or eating out, know what your spending range is for that month so you aren’t over your budget by the end of the 30 days. You might not be able to cut out or reduce these expenses significantly but you will be able to set some caps or limits.
2. Know the difference between “absolute” and “flexible” necessities
When creating expense categories for your budget, begin by listing how much you need to pay for essential things, like rent, utilities, transportation, etc. Any item that you have no leeway over must be dealt with first. Many people make the mistake of paying for their essentials on-the-go. When you receive your paycheque, the first priority is allocating money for your “musts”. Put that amount aside and do not be tempted to spend it on non-essentials.
On the other hand, items such as food, your internet connection and clothing are “flexible” necessities because their amounts can vary significantly from one month to another and are based on preferences and lifestyles. Ideally, you should not be spending more than 40 per cent of your income on flexible necessities. Your income level will inevitably have an effect on how frequently you eat out, travel, or buy new clothes. Make sure that spending on these items is proportionate to your income.
3. Do not use the “leftovers” as your savings
When you formulate your budget sheet, designate a specific percentage of your income as savings. A realistic proportion is 10 to 15 per cent. Make sure this amount is calculated before you receive and begin spending your salary. More than one third (35 per cent) of respondents to the Bayt.com Middle East and North Africa salary survey claim that they do not manage to save any of their monthly salary. If you wait until you have spent most of your income and use the leftovers as savings, then you will end up saving very little or nothing at all.
4. Designate a budget for emergencies
It is critical to assign a slice of your income for urgent matters. Illness, accidents and job dismissal are all highly unpredictable and often carry significant expenses. Do not assume your savings are your emergency fund. Although you may sometimes have to spend a portion of your savings on emergencies, keep the emergency budget separate from your savings.
5. Diversify your income
Most of us are familiar with the saying “don’t put all your eggs in one basket”, and this adage can be applied to your source of income. Relying solely on your job has inherent risk, because if the economy tanks and you lose your job, you’ll also lose your only income and your ability to meet all your financial obligations. In this region, a full-time job is the main, and sometimes the only, source of earning but having multiple streams of income can keep you afloat. Options for bringing in a second income include renting out a property or a room in your home or taking on a weekend or freelance job. A strong writer, for example, can consider writing blog posts; if you’re crafty you can sell your creations and if you’re handy around the house you can consider advertising your services online. Don’t let these examples limit you. Any skill or talent your have could potentially be turned into a way to earn extra income.
Suhail Masri is the vice president of employer solution at the Middle East jobs site Bayt.com
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