Many people think that living pay cheque to pay cheque means that they are off the hook on financial planning. That is partly because they associate financial planning and money management with savings. Although savings can be a goal of financial planning, being aware of your financials, income and spending, is a more critical goal. In the process, you may be able to make some savings and reduce the stress of living within your means.
When you’re hardly making it financially every month, it is difficult to see the point of budgeting. Your money probably is being already allocated to paying rent, bills, tuition and whatever left goes to cover daily expenses. Taking a closer look can reveal many areas that if tightened can help you make small savings, which in the long term provide a financial cushion that helps you avoid debt if an emergency occurs.
So here are some points to look closely at as you start on your monthly budget.
Mark your expenses based on their percentage of your income to know which areas are swallowing the biggest chunks of your money. If you find one or two items that are taking a high percentage, for example, 30 per cent or so. These are items that are well beyond your means. Rent can be one of these areas. And although you may have a good argument for why you pay that much for rent, it is still an area that can be tightened if you’re trying to bring your expenses down immediately or in the future.
Major expenses also can be those that are accumulate over time. For example, if your dining out adds up to as much as you pay for your car lease or a significant amount compared to your monthly income, that is also an area with a room for improvement.
Once you highlight these expenses in red, make decisions on what you can scale back on. You can experiment with different strategies month to month to see what fits within your comfort zone. But generally, if you’re trying to live within your means and put some money aside, you must minimise these major expenses to what’s absolutely necessary.
Consider what’s being deducted from your income before and after it reaches your hands or bank account. In many cases, people have many running deductions and bills that are being automatically renewed, and they take them for granted. For example, your internet provider may have doubled your cost over the years and you didn’t notice because the charge is being automatically running on your credit card or withdrawn from your bank account.
Taking a good look at these running costs can give you ideas about what can be shopped around or even cancelled. Many online services are automatically renewed. If you’re not paying attention, you may be racking hundreds of dirhams on services that you are not interested in or not using.
Take a big-picture look at what you consider an acceptable standard of living. If you’re hardly running pay cheque to pay cheque, you’re vulnerable in case of any financial crisis like death, illness or divorce. Although making downgrades may not be a popular decision for you or your family, it may be the best route toward financial stability.
In many cases, one or two big downgrades can help you maintain many other lifestyle aspects. It is an individual preference, however. Some people may prefer to give up a lot of the small stuff to keep the big lifestyle aspects of their lives, like where they live, which schools they send their children to, etc.
In all cases, take a serious look and find ways where your income can go farther. It may seem impossible at first, but with some cuts, changes and many sacrifices, it can be doable.
Tightening the belt
Make sure you live within your means.
Make some sacrifices to save.
Take a look at running expenses.
Consider areas that can be scaled back.
By Rania Oteify
© Al Nisr Publishing LLC 2019. All rights reserved.