Six tips to live a debt-free lifestyle in the UAE

UAE expats struggling with the everyday costs of life such as rent and school tuition must find a way to afford their lifestyle without borrowing to fund it, warns money coach Caroline Domanska.

Many of us want to put our children first, but do your research and ask yourself if paying the highest fees means the best education. Sarah Dea / The National

In this week’s lead story in The National’s Money section, we looked at the expats struggling with the everyday costs of life in the UAE such as rent and school fees. Many have become accustomed to a certain lifestyle and as costs mount have found the only way to retain that lifestyle is to borrow to fund it. For some, it means taking out loans to pay for rent and school tuition a year in advance. Money coach Caroline Domanska, the founder of Money Mindset Coaching, says it is a dangerous cycle to fall into.

"The biggest impact debt has is the sense of worry, the sense that your life is all built on a house of cards that could fall any minute. It comes with a feeling that you haven't really achieved what you set out to do in life, and that it's not real," she says. "It can cause arguments, and tension in a family. And it teaches children that debt is OK."

Here, Ms Domanska offers six tips for living a debt-free life:

1. First look at your last six months of bank statements and record what you are spending your money on right now. I often find people don't know their true disposable income each month and overspend. How many times do you say 'but we had visitors this month' or 'we travelled' or 'the car insurance was due'. Know what you have as disposable spending each month by making sure you put money aside for the larger events that come up such as holidays, car expenses and birthdays. This means you get a true sense of what is available for spending each month and can make conscious spending decisions accordingly.

2. Next, work out what your basic level of expenditure looks like such as keeping a roof over your head and food on the table. This will give you reassurance of what you can manage on without adding to debt. Then decide what upgrades to your basic lifestyle are non-negotiable for you such as a three bed versus a four bedroom home, a maid, a car and so on. Finally, ask yourself are you willing to go into debt for these things and could you live without some of the comfort for a while to get out of debt.

3. Ask yourself, what is a decent life? Often as expats we feel like we "deserve" rewards for the fact we are away from home, and making sacrifices. That life "should" be a certain way for expats. How would life look if we took it at face value and worked out the reward we wanted to leave with rather than have in this moment.

4. Remember, education loans may not be the answer. Many of us want to put our children first, but do your research and ask yourself if paying the highest fees means the best education. What are you teaching your children about money if you go into debt that might end up unaffordable? It's not enough just to say that my child is worth it, unless you can continually afford their education you are just hoping it will work out well.

5. Snowballing debt must be stopped. If you have multiple debts, you must focus on clearing your most expensive debt first. Use a debt calculator such as www.whatsthecost.com/snowball to see how long it will take to pay off your debts. This is especially useful with credit card debt. If you don't like what you see, what steps can you take to change it? Play around with paying an extra Dh300 or Dh500 month off your debt. How does that change things? You might be surprised how much less interest you pay and how many months are shaved off the debt.

6. Lastly work on your mindset to money. Money is just a result and effect. It's not the cause. We as people make decisions on what we do with money every single day and those decisions are driven by our thoughts and emotions. If you can really know why you make the money choices you do you will be able to break free of this cycle of debt.