If you don't have it, don't spend it. You'll never get out of debt by borrowing more.
How simple is that?
But do you live by this code? Chances are you don't. We carried out a survey on my financial empowerment website asking if people kept a budget. More than 55 per cent of those who responded said no, they do not keep one. The real figure is probably a lot higher because people visiting my website are looking at money and life issues and addressing them, and so are more likely to have money habits that help them keep abreast of their finances than the average person is.
If you don't know what you have coming in and going out, how can you begin to know what you can afford?
I'm not talking about major life purchases, like a home, I'm talking about how you go about spending on everyday things. And going by data released from the Central Bank last month, stating that lenders in the country provided more credit in June this year than at any time since 2011, it's safe to say that there's an alarming increase in the number of people who are risking a lot more than being clobbered with high interest rates. I believe their very existence is at risk.
Personal debt is growing here in the UAE. From the end of 2007 to the end of 2008, debt grew by 50 per cent, and has continued to increase steadily since. Personal debt is now 57 per cent higher than 2007 levels. These are Central Bank figures once more, and include loans, advances and overdrafts to residents.
This year, there has been an increase in these figures every month. And I find this extremely alarming.
So what can you do about it?
Don't spend money before you have it.
This is what nearly every single person I've ever talked with about money, life, budgeting and so on does: they roughly work out what they earn vs what they spend - you can see the wheels whirling as they carry out this mental arithmetic, and then the "Oh my" moment happens when they realise that the way they live is simply not sustainable. Then their next thought is ... wait for it ... "Oh, so I need to earn X amount to be able to live like this!"
X being more than their current salary Y.
Yes. This is, in essence, true. That many people's earnings need to significantly increase in order for them to be able to afford their way of life. But. This is absolutely the wrong way to think and go about things.
Why? Well, first of all, just because you decide that you need salary X doesn't make it magically happen. In fact, with ongoing regional unrest and political conflict I'd say chances are that there is a growing queue of talented people willing to fill your shoes - for less than you currently earn - or perhaps your company could decide to pull out of certain places in the region and scale back its presence generally.
The point is, nothing in life is guaranteed. You cannot take for granted that your current job will be open to you for any period of time, plus, you also need to take on board that anything - absolutely anything - could happen to you that takes away your ability to function as you currently do in the long run, or even with immediate effect. This could be good news - such as: "Congratulations, you're expecting twins". Or bad news: you becoming incapacitated, for example.
So, my first message is simple and two-fold:
Live within your means. And, tomorrow always comes.
And when that tomorrow comes, and you don't have the paycheque you banked on to bankroll your life, you're in trouble, pal.
If you know what you earn (presumably you do) then you need to use this as your starting point. So how about working with that lump sum, and subtracting from it what you need to cover your essential, basic expenses, such as housing, utilities, food, school fees, and various insurance policies? In other words, draw up what you spend on what you need, then look at what you want and like for yourself.
It's great to have confidence in the future - but to gamble on the next paycheque always coming in to make ends meet - no, that's not a way to live.
My next thought is: how about living below your means?
Meaning, great if you are not spending more than you earn, well done! But. You really need to be putting money aside. The aim is to live well now, and in the future.
What is your UAE dream? Is it to have a great time in the sun, enjoy life and still look after the future - or throw caution to the wind and blow it all on the moment?
We'd all do well to remember what brought us out here in the first place: the UAE dream - work out what yours is, and stick to it - lest it becomes the beginning of a nightmare.
Nima Abu Wardeh is the founder of the personal finance website www.cashy.me. You can contact her at nima@cashy.me
