How to create a personal budget

Creating a budget is the first, and perhaps most essential step towards achieving your financial goals. A comprehensive budget tracker or spreadsheet – actively monitored and regularly updated - can act as a blueprint for healthy financial planning by helping you avoid overspending and get you closer to achieving financial goals.

Here are six simple points to keep in mind while creating a budget.

App or Spreadsheet?

Whether you prefer an old-school approach with pen and paper, a customized spreadsheet or a handy app, decide on the most convenient method for your lifestyle and habits. Many apps can be connected directly to your bank accounts and are equipped with handy tools to automatically categorize spend and provide real time alerts on overspending. If your spouse or other family members will be regularly adding in household spend, you may want to consider an excel sheet shared via Google Drive. Whatever the budgeting tool, set yourself up for success by deciding based on what you will be most comfortable using every single day.

Track all income

Determine your monthly income, as an individual or household. While there is currently no personal income tax in the UAE, examine all sources of income, including income from part-time jobs or hobbies. Ideally, discretionary income such as an annual bonus or performance-linked cash incentives should be accounted for separately.

Examine all expenses

Begin by listing all expenses, starting with fixed expenditure such as rent or a mortgage if you have one. In addition to big ticket items such as a car loan, if applicable, consider all recurring expenses including telecommunications and electricity bills. If you have house help, add in monthly salary and visa fees. It is also advisable to factor in large annual expenses such as insurance premiums, and school fees by pro-rating over the 12-month period. Next, tackle variable expenses such a petrol, credit card bills, groceries and dining out. Don’t forget smaller ticket items such as your monthly car cleaning fee or laundry bill – every bit adds up!

Categorize spend

Once you have listed all expenses, it’s helpful to categorize spend, so you know where to make adjustment. Categories can be as broad as you like based on your lifestyle. Start by listing all fixed expenses such as rent, electricity and telephone bills under household expenses and then divide variable expenses into sub-categories such as groceries, entertainment and shopping.

List all other financial commitments, including investments

Do you have a loan you are paying off in your home country? Monthly remittances to family or loved ones? You should list all regular outgoings in your budget tracker to get a clear picture of how you deploy your money. Include money set aside towards medium-term goals such as an emergency fund as well as long-term financial planning such as monthly insurance-linked investments, children’s education fund or other investment products in a separate category. Remember, paying yourself first is the golden rule to achieving financial freedom.

Evaluate, adjust

While an app can help you quickly identify overspending in a certain category, you should examine all expenses at the end of the month, and revisit every three or four months to understand where you can make changes in your spending patterns. The broad idea here is to distinguish between things you need to have and things you want to have. Identifying medium and long-term goals will help you cut back on non-essentials. Is your credit card bill leaning towards entertainment and dining out? Or worse, is credit card debt eating up your monthly income? Will switching to a cheaper data plan or reducing the number of times you order takeaway help you pay some of your debt faster?

Look at the big picture

If the numbers still aren’t adding up, you may need to relook at your fixed expenses. Adjusting big expenses such as house rent, car loan or school fees can have a significant impact on your budget. Are you willing to downsize for a few years to save for a dream home or car? Being disciplined and living within your means is the foundation to successful financial planning.

Keep at it

Maintaining a budget is a life-long (and rewarding) habit. Encourage members of your household to support you in keeping track of expenses and working together towards financial goals. One step at a time, every single day and you will master the art of a healthy financial lifestyle.

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