How to make the most of your income in 2025

Budget your earnings, create an emergency fund, tackle debt, set savings goals and start investing

Having a clear idea of exactly how much you spend each month is critical to start the financial planning process. Getty Images

The beginning of the new year could just be the best time for a financial reset.

Planning your savings and investment journey doesn’t have to be complicated, but it is necessary to begin as soon as possible.

We spoke to several UAE-based personal finance experts on how one could get started, if you haven't already. They suggest looking at where your money is being spent as the first step to financing your dreams.

Budget your household expenses

While most people may have an idea of general expenses, a deep dive into your household spending is usually an eye-opener. The best way to budget your expenses is to make sure that non-negotiable expenses or “needs” don’t go over 50 per cent to 60 per cent of your salary. Anything over 60 per cent suggests you need a change of situation – either by lowering your expenses (a car downgrade or moving to a cheaper area) or by bringing in higher income.

Your “wants” come next – such as entertainment, dining and self care. Allocate up to 30 per cent of your income for these expenses, and add a 10 per cent to 15 per cent buffer each month for any unforeseen miscellaneous items such as a traffic fine or a tyre change.

Lastly, aim to save 10 per cent to 20 per cent of your income, which can be used for investments and paying off debts.

Calculate your net worth

List your assets (even those in another country) and liabilities, and the difference is your net worth.

“You gain an objective view of where you stand, which is critical for setting realistic financial goals, whether you're saving for a major purchase, tackling debt, or planning for retirement,” says Abhishek Datta, associate vice president at the Continental Group.

Set up an emergency fund

An emergency fund should cover all your needs for at least three months and up to a year. While some people add only essentials for this amount, adding an extra buffer for debt repayments would be ideal in case you have high-interest loans to cover.

You could store this in a high-yield savings account in the UAE. However, having too much saved in an emergency fund would mean a depreciation in the value of your money over time.

“That number [for the emergency fund] could be different for different people, based on what helps them sleep better,” says Mr Datta, adding that it is important to have a fund ready before one starts investing.

Investments should ideally never be liquidated for emergencies as that could lead to losses and cut into your long-term plans for wealth creation.

Tackle debt

Knowing exactly how much you owe is critical as is the interest rate for each loan. Credit card debt is the costliest kind of debt to have if you don’t pay off everything each month, reaching as high as 30 per cent payable in interest a year.

You could choose to either focus on the costliest debt first (avalanche method), or pay off the smallest and easiest debt before moving on to the next (snowball method).

While getting a loan to pay off debt seems counterintuitive, if you have a healthy debt-income ratio and are determined and diligent about all payments in the future, you could use low-interest loans to consolidate credit card debt, according to Sandeep Jadwani, head of investment advisory at H Capital.

“Many UAE banks offer zero per cent interest balance transfers for a limited time. Use this to reduce your debt burden faster. My advice [would be to] avoid the trap of paying only the minimum amount, as this prolongs debt repayment and inflates interest costs. Allocate a portion of income specifically towards debt repayment, cutting non-essential expenses,” he says.

If you feel like you are drowning in debt, ask your bank for plans to consolidate the loans and try to arrange for more affordable payments.

Set short-term savings goals

No expense is too big if you plan for it and start saving small amounts early, even as low as Dh100. Aggregated user data from Maly – an app that tracks and encourages incremental savings – shows that users who actively engaged in micro-saving strategies (contributing between Dh10 and Dh50 at a time) accumulated between Dh2,400 to Dh3,000 in annual savings.

“Even households with modest earnings can establish a reliable savings pattern by beginning with very manageable amounts,” says Mo Ibrahim, founder and chief executive of Maly.

“For example, they could start by setting aside as little as 2 per cent of their monthly income – an amount typically small enough not to disrupt their daily budget. Over time, they can gradually increase this percentage, aiming to reach a 10 per cent savings rate within about two years.”

Your savings could go partially towards goals like travel and partially cover big expenses such as school fee payments. If you have already reached your emergency fund and other savings goals, earmark money for investment and retirement.

Start investing

Low or middle-income expatriates must focus on accessible and diversified investments that balance risk and reward over a longer time horizon, according to Mr Jadwani.

Josh Gilbert, a market analyst at eToro, says: “To invest responsibly, investors (no matter if they are a fresh face or seasoned) should only invest what they can afford to lose, adopt a long-term mindset, set realistic goals and ensure they research what they are investing in before buying assets.”

You could start with a little practice. Robo-advisers like eToro and Interactive Brokers have demo accounts where you can practise with virtual money first. In the UAE, platforms like Sarwa and StashAway also offer automated investments.

The easiest way to invest is through index funds and exchange-traded funds, Mr Datta says. “Pick an S&P 500 ETF, a global market ETF and an equal weight S&P 500 ETF to start your investing journey. Step up the investments by 5 per cent every year at least, or at the rate of increase in your income over time. Understanding the trade-off between risk and reward is key.”

Mr Gilbert says you can get started with as little as $10. It’s not about starting big, he adds.

Guide: If you have Dh500 a month to go into investments, here’s how your money could grow based on past performance.

Automate everything

One way to stick to your goals is to automate your savings, expenses and investments.

“Automating transfers ensures that you ‘pay yourself first,’ allowing a portion of your income to be directed into savings or investments the moment it hits your account,” says Mr Ibrahim.

“Even automating an extra Dh100 per month towards the principal can shorten the debt payoff timeline significantly and save hundreds of dirhams in interest.”

For instance, if you earn Dh15,000, transfer 20 per cent of your salary immediately into a separate savings account (Dh3,000). Allocate money for an emergency fund (Dh1,000), a goal such as travel or the down payment for a car or house (Dh1,000) and investments (Dh1,000).

Pay off debt and essential expenses next (Dh7,500 to Dh9,000) and anything that remains is what you have for discretionary purposes (Dh3,000 to Dh4,500).

This article is for educational purposes and cannot be considered as financial advice. The comments included are not to be considered endorsements of the associated companies or platforms.