Three Tips to Master the Art of Leading a Debt-Free Life

financial planning

Living a luxurious lifestyle in Dubai is not that difficult these days. Everything, right from a top-rated home appliance to a new home to the latest car model, is within reach via loans and credit cards. Easy and convenient payments along with frequent sales and attractive discount schemes further encourage people to splurge beyond their budgets. However, when your income is limited, you can quickly drown in debt that can be difficult to manage or you may find it nearly impossible to repay. Thus, before you find yourself in a debt trap, start mastering the art of debt-free living with the following three tips.

  1. Never live outside the means of your paycheck

The first step towards living a debt-free life is to stick with your budget and to not live beyond your means. But how can you identify if you are splurging more than you can afford? Here are some signs to keep an eye on:

  • Don’t have sufficient Emergency Funds
  • Living pay check to pay check
  • Have to allocate more than 28 percent of your income on housing only
  • Buy gadgets, clothing, and items due to fear of missing out
  • Worry about paying your bills constantly

These signals don’t right away tell that you are living beyond your means. There might be underlying reasons such as getting a very low monthly income, having a student loan, or other circumstances that can lead to financial stress. In that case, you should ask for a raise or change your job to get a better paycheck or upgrade your skills so that you are able to command a higher salary.

However, it might also mean that you are simply overspending. Whatever it is, take a step back, look at your monthly salary, track your expenses to see where your money is going, and cut down all the non-essential expenses. If you want something expensive, then save for it and buy it later.

  1. Make sure that 15% of your annual income goes directly to savings

Regardless of your lifestyle and expenses, you need to make sure that 15 percent of your annual income directly goes to savings. Don’t make the mistake of considering this figure as the maximum amount you must save. It is the bare minimum when it comes to savings. In case you have big financial goals or want to get financial independence at an early age, then you should aim for 30 to 40 percent.

To make this possible, start as early as possible. If you are finding it hard to save that much, you can work your way up. Start saving what you can now, and increase your contributions as your outstanding loans clear up and your salary rises.

  1. Don’t use your savings unless it is an emergency.

The third rule of living a debt-free life is to not use your savings under any circumstances unless something meets the emergency criteria. To avoid overspending, create a different account to deposit your monthly savings. Don’t link or add this account to shopping sites and do not withdraw from this account upon your whims.

To handle emergencies, create a separate emergency fund that is at least 6 times your monthly salary. After going through the pandemic for over 2 years, it would be wise to aim for having an emergency fund as big as your two years’ salary if possible. It will help you stay afloat should you happen to lose your job, develop a severe disease that makes you unable to work for a few months, or get involved in an accident that leaves you in debilitating condition for a long time.

There will be times when you will find it tempting to use the money toward taking a vacation, paying off debts, or putting a down payment for a new home. Always remember that the sole purpose of having an emergency debt is to prevent you from having more debt during critical times.

For better financial planning, contact our financial consultants at New Age Insurance Broker LLC. We can help create smart budget strategies, assist with investment planning depending on your risk tolerance, and save a lot more to help you live a debt-free life.