Cash management is a valuable opportunity to put your money to work for yourself, and your financial plan should always start with this as it addresses two major issues:

  1. Finding the funds necessary to finance your plan, and
  2. Ensuring that your cash is used properly to meet your goals

When your time is limited - managing money is harder than making it - so budgeting is essential. Below are a list of valuable tips and questions to help you manage your money better.

Are you accumulating wealth quickly or are you struggling day-to-day to cope with your expenses? The best indicator is your net worth.

There are three steps to create a budget:

  1. Identify how your money is currently being spent.
    This requires analysis of your withdrawals from your checkbook, credit card statements over the last year and even ATM receipts.
  2. Evaluate your spending.
    Create some guidelines for future spending.
  3. Track ongoing spending.
    You may find that your guidelines are too strict or too loose and might need to be revised.

Here are two important steps to help reduce your spending:

  1. Avoid impulse buying.
    Think before you reach for your wallet and your credit card. If you had to pay cash, would you still make this purchase?
  2. Compare shops as a matter of habit.
    Differentiate between your needs and wants.

Need: A necessity, something required and essential for life. Example: Clothing, food, tools for work and medication.

Want: A desire, something wished for and non-essential. Example, a vacation; meals in restaurants, video games, gym memberships and designer shoes.

My needs and wants - Setting priorities

Difference between needs and wants is the first step.
The next step is setting priorities on your spending.

Setting spending priorities

To set your spending habits, you could refer to a simple 1-2-3 priority system:

  1. Essential items
    (e.g. basic food, shelter, clothing)
  2. Important items
    (e.g. transit pass, running shoes, cell phone)
  3. Non-essential and not important items
    (e.g. candy bars, spa treatments, music downloads)

Tracking daily expenses

It’s easy to track your daily expenses once you get into the habit. Here’s how:

  • Write your expenses down in a notebook.
  • Record expenses on your smart phone.
  • If you bank online, you can get electronic account statements that show your spending history, which might even arrange your spending into categories. Free online software is readily available to help sort this from your bank account.

Get more for your money

There are also ways to get more out of the products and services you buy. Here are some tips:
  • Get a better communications package.
    You can often save by bundling your services for telephone, cell phone, internet and cable. Call your service provider to negotiate the best package.
  • Get the best package of banking services, at the lowest cost.
    Contact your financial institution to see if you can get a lower-cost banking package or a lower profit rate credit card. Use to find lower-cost bank accounts and credit cards with the features you need.
  • Pay bills on time to avoid late fees, lower profit rate and penalties.
    Check your bills to spot mistakes and overcharges.
  • Check out the real costs of car ownership.
    These include: insurance, maintenance and weekly costs.
  • Compare the cost of renting vs. buying a home.
  • Consider forming a money support group with friends or family.
    In addition to getting discounts through group buying, you can help each other stay on track in reaching your financial goals.

There is no magical solution for everyone. Every person, every family, every household is different and if you want to reduce your spending, you’ll find ways to do it. If you can’t, there are credit counseling services available, which you can turn to for help.

The envelope system

Another method for managing your cash flow and your spending is the envelope system. The advantage of the envelope system is that the money is allocated in advance, so there are pre-set limits to how much you can spend in any one category, every month.

How to set up an envelope system?

  • Look at the total income you have available each month.
  • Withdraw your fixed monthly expenses: savings, debt payments, rent or mortgage, insurance, utilities, etc. Set this money aside before you allocate funds to the envelopes.
  • With the remaining funds, estimate how much you will need for major expenses like food, transportation, household, clothing, etc.

    (It will be helpful if you have tracked your spending for the last few months).

  • Label an envelope for each spending category.

    (An alternative is to use glass jars).

  • Divide the monthly total for each category by four and place that amount in the envelope at the beginning of each week.
  • Although the amounts in each category may be rough estimates at first, you can adjust them as you get more experience. You can also add envelopes for special projects and additional categories, as needed.

Keep your budgeting system alive

Whether you use a budget or envelopes, your budgeting system isn't a one-time exercise. To make it work, you need to review it regularly. Get into the habit of doing this weekly and once you are certain that it is accurate, review it monthly.

  • Verify that your income and expenses figures are still realistic.
    If your actual spending is far from what you estimated, you may need to adjust your figures.
  • Keep up with your savings and debt repayment commitments.
    Can you increase the amount you save or repay each month?
  • If you are sliding into a deficit, take a look at where you can cut your spending.

Ways to avoid debt problems

It's easy to spend without realizing how the debt increases. Here are some good tips for avoiding this trap:

  • Leave your credit cards at home.
  • Decrease the credit limit on your credit cards.
  • Set up automatic bill payments with your financial institution.
  • Avoid impulse buying. Sleep on it and see if you still want the item the next day.
  • Think over each expensive purchase for at least 24 hours. Acting on this principle, you will have more money for emergency savings.
  • Avoid "buy now, pay later" offers.
  • Keep track of your expenses and manage them with a household budget.
  • Limit credit card purchases to those you can pay off in full at the end of the month.
  • Go shopping with a list, and stick to it. Control your spending.

Expect the unexpected:

Everybody’s circumstances are different but you need to do this in order to be prepared to face the unexpected.

Emergency Funds:

Your finances are hit when you fall ill or lose your job. If you do not have funds for such emergencies, you may have to tap into the savings you may have kept for your future goals.

For a salaried person, this may mean starting to save from the scratch. Also, most of us have loans to repay, and any emergency can lead to default. This can jeopardize your credit history as well. Hence, it's necessary to have an emergency fund. Ideally, you should be able to meet about four to six months' expenses in case of an emergency. If you have been falling short on this account, calculate how much your ideal emergency fund should have and start saving immediately to reach the required level.

For an individual to be financially comfortable savings of 4 months’ salary is essential, and for a household with children, the figure needed is at least 6 months’ salary.

Pay yourself first

This thumb rule relates to understanding a simple equation: Income – Savings= Expenses. This means that whatever your income is, you must first set aside money for savings and then start routine and discretionary purchases. This will ensure that you do not skip contributions for essential life goals such as retirement. This can be achieved through systematic investment planning or auto transfer to your child’s saving account.

How it works:

For example, let's assume you bring home AED 10,000 a month. In the pay-yourself-model, saving comes first, not last. That is, you might set up an automatic deduction of AED 1500 (15%) from every paycheck that goes into a savings account. What's left is what you have to pay your bills, your rent/mortgage and all your other expenses.

Other useful Tips

  • Pay bills on time to avoid late fees, profit rate and penalties. Check your bills to spot mistakes and overcharges.
  • It is not about how much money you make, but in fact how much money you save.
  • A good financial plan is dynamic and changes as your life does. Do a review of your budget each month and make adjustments.
  • Funding a college education is one of the most valuable gifts you can give a child, but unfortunately, it can also be one of the most expensive.
  • Did you know? Inflation can affect your retirement income by increasing the cost of goods you buy and decreasing the value of your savings. Take inflation into account when calculating your retirement needs./li>
  • Plan early for your retirement—it will be too late when you're about to retire. Consider what income you'll need when you retire and how to get it.


  • 01Get lower profit rates 01

    Ask your credit card provider to lower your profit rate or transfer your high-profit rate credit card debt to a card that charges less.

  • 02Refine your debt-paying strategy

    Pay off your highest-rate debt first. It may take longer to pay off, but you'll save money on profit rate according to the snow ball strategy. Alternatively, you could pay off your smallest loan first for the satisfaction of having one less bill to pay

  • 03Consolidate debt with loans03

    Apply for a debt consolidation loan, since they charge lower profit rates. You can pay your debt off faster if you pay less profit rate, as your money will go towards your principal. The best thing is that you will have only one payment to manage each month.

  • 04Refine your debt-paying strategy

    A lot of people get into the trap of making minimum payments on their debts. Because they did not pay any principal, the balance increases. To avoid this, try applying any bonuses or extra cash you have against the principal. It will reduce debt repayment time substantially


Rule of 72

Rule of 72 is another rule of thumb; a must-know to anyone looking for help with financial planning.

So what is the Rule of 72:

It is a very quick and simple piece of arithmetic which gives you an accurate indication of how your investments may grow depending on the level of profit rate or investment return they receive annually. In effect, it is a shortcut which gives you an accurate estimate of progress towards a lump sum goal.

To do the calculation:

Divide 72 by your annual investment growth rate or profit rate.

For example, if you had savings that were returning a hypothetical 6% a year, it would take 12 years for your investments to double in value (72/6=12).

To determine how much return you need to double your investment in 12 years, simply do the reverse (72/12=6). You need to earn 6% profit rate annually to double your investment principal in 12 years.