As inflation continues to rise rapidly across the globe, many may begin to realize that a dollar today can no longer get you as many goods and services as it did in the past. Indeed, with rapidly rising prices, it can be challenging to keep up with your preferred lifestyle if your income remains constant. Hence, slight adjustments are necessary to ensure that you’re living within your means in today’s inflationary environment.
If your income doesn't cover your expenses, you must either cut your expenses or increase your income. It's usually easier to cut spending than to increase income. You don't need to make drastic changes, but you must make some effective cuts that will allow you to pay your bills.
First, cover the bills you must pay (mortgage, utilities, loan payments) and money for necessities (food, clothing, insurance). Then, focus on non-essentials - areas where it will be relatively painless to cut back.
Easy Ways to Cut Expenses:
The following are some simple ways to cut expenses. They also work if your bottom line is positive.
- Reduce your food costs.
- If you visit restaurants and order take-out often, consider "brown bagging" lunch and saving restaurants for special occasions.
- Make it a habit to have breakfast at home. A bagel and coffee on the way to work every morning can cost as much as AED 15 per day – that adds up to more than AED 4000 per year. If you're married and your spouse has the same habit, it's more than AED 8,000 yearly.
- Review "fixed" expenses.
- Look into reducing your electric bill by conserving energy. This can be achieved by implementing small changes, such as ensuring all lights are turned off when you leave a room and switching to small screw-in fluorescent bulbs. Even though fluorescent bulbs are slightly more expensive than regular bulbs, they last at least five times as long and use only about 40% as much electricity. Hence, each bulb can save you AED 150 or more over the course of its life. If you add up how many bulbs you have in your home, the savings become significant.
- If you smoke, think about giving up smoking. Besides the health benefits, you could save over AED 3,200 per year by quitting a pack-a-day habit.
- Get out of debt.
- If you have debt on multiple credit cards and find that the monthly payments are depleting a massive chunk of your take-home income, consider debt consolidation. Debt consolidation allows you to combine multiple debt payments into one monthly payment at a lower interest rate.
Getting out of debt is tough. It also takes time. Most people need a year or two to escape debt, but you can do it if you stick with it. Remember, the discipline and techniques you learn by solving your problems will benefit you for the rest of your life. Getting out of debt feels great. Staying out feels even better.
Cost Savings Ideas
Once your monthly spending is under control, you can think about some ways to make debt a thing of the past. Here's a list of cost-saving ideas.
- Review your budget. Each month, try to reduce a different spending category by 5%-10%.
- Track your spending. Are you spending within your means? If your expenses are higher than your income, it’s a sign to cut your expenses. This is essential to ensure that you don’t fall into debt again.
- Start a savings account. It is always a good idea to set aside some funds for emergencies or significant, infrequent expenses so they won’t upset your budget.
- Only purchase items that you can afford to pay in full immediately. If it is an emergency purchase that cannot be delayed, check if it is eligible for 0%EPP deals that allow you to convert your purchase into interest-free installments.
- Be prudent with your credit card spending. Treat a credit card balance like you'd treat a bank loan for the same amount.
- Avoid the "sale" mentality. When you buy an AED 100 item on sale for AED 60, you don't save AED 40. You spend AED 60. It's only a deal if you need it and can afford it.
- Consider increasing your income. Can you ask for a salary raise? Is a second job possible? Can you sell something you no longer need?
- Reward yourself. Working your way out of debt is a long and arduous process. It's also a significant accomplishment. Find inexpensive ways to celebrate your progress.