Like millions of people around the world, Diana D'Souza didn't plan to live her life on the financial edge. But with mounting debts and eight high-interest credit cards, her salary was swallowed up each month by a multitude of minimum payments and other bills, leaving her to survive precariously from paycheque to paycheque and no way to start a savings plan. “It came to a point where I was completely suffocated," Ms D'Souza, 39, says. "I was living from one paycheque to the other and hoping to get an increment or some other incentive to pay off my dues. I kept accumulating debt for seven years. "When I fell short of cash, I would get myself another credit card. I was spending to maintain a lifestyle," she adds. The former accountant decided to get a personal loan to pay off her credit cards and have just the one instalment to pay for each month. She took out a loan for Dh70,000 in 2012, closed five credit cards, settled the dues on another one with a bonus she received from her employer and retained two cards. However, Ms D'Souza, who was single at the time, continued to use the two credit cards she retained, negating her original plan of consolidating her debts with just one monthly payment to get her finances in order and start saving. She recalls how her rent cheque bounced twice because she did not have sufficient funds in her account. "I didn't have any money left after paying for the loan and credit cards," she tells <em>The National</em>. "When the rent cheque was due, I could not pay my credit card balance and used to struggle. I would always pay only the minimum balance on the credit cards because I was left with no money after paying the loan instalment, which I could not afford to default on." She eventually topped up her loan to Dh150,000 to settle the card dues. She used her bonuses, annual ticket allowance and other company incentives to reduce the outstanding loan amount, although the bank warned her of early repayment charges. After repaying the loan in September 2018, she is debt-free today. It was an expensive lesson to learn, but Ms D’Souza now says people should not be tempted by “buy two, get one free” offers unless they are in dire need of them. Stop focusing on your wants and prioritise your needs to reduce your liabilities, she adds. “You have to start the habit and although you won’t see big changes initially, you will notice a difference in the long run,” she says. Financial experts say that living from paycheque to paycheque is not necessarily a disaster if people are saving adequately for their future goals and have a healthy emergency fund. However, many people in the UAE don't have an emergency fund or the minimum three months’ worth of expenses, says Rupert Connor, a partner at Abacus Financial Consultants. It takes discipline and a plan to break the cycle of living from paycheque to paycheque, he adds. “Pay attention to the outflow of money; spend a month documenting every single purchase, whether it be by card or by cash. This will enable one to have a clearer picture of where your cash is going and where there is overspending,” Mr Connor says. “Ideally, this will have the effect of changing spending habits, to stretch out money so that there is an amount left over before the next paycheque arrives.” Another tip to escape from the paycheque-to-paycheque cycle is to work out what amount is needed for the week’s expenses, take the cash out and then be strict and only use this, Mr Connor says. Most importantly, build up an emergency fund for expenses, he adds. People caught in a debt spiral can also tweak their lifestyles by downsizing their accommodation and car, and shopping around for better mortgage rates, bank loans, credit card interest rates, phone plans and groceries. “Start with the most necessary of your outgoings, which could include rent/mortgage payments, utility bills and grocery shopping,” says Chris Keeling, a chartered financial planner at The Fry Group Middle East. “For everything else, look to see if there are cheaper alternatives. For example, re-assess elements like TV subscriptions, a cheaper gym membership, or even cutting down on takeaway food/coffees and eating out. Cutting down on expensive or unnecessary purchases means that you can allocate more to debt repayments.” Another tip to be debt-free is to raise more money. “Sell stuff you no longer need. Get a part-time job or side hustle. Aspire to earn more through your chosen career by attaining a better-paying role or retrain to better yourself,” says Mr Connor. It also helps to focus on the future and set long-term goals, such as retiring early and travelling the world. “They will not happen unless one starts being intentional today,” he adds. Leah Renee Bott, an American expat in the UAE, understands what it means to live from one paycheque to the next. She had more than $30,000 in student loan debt as well as credit card dues of almost $15,000 between 1994 and 1996. “I was in debt all through my 20s and into my early 30s,” says Ms Renee Bott, 50, who is now semi-retired, debt-free and lives in Dubai where she owns an apartment. “I worked as a seasonal employee for 10 years and had to keep to a strict budget because I had to live all year on what I made in six months. That taught me to be a super saver.” The former project manager recalls how she would live from one paycheque to the next if her employer did not provide her with housing and food. Ms Renee Bott, who is launching a website and YouTube channel called <em>The Frugal Expat</em>, shares a few tips for UAE residents who are caught in a debt cycle. "Don't buy things that other people have if you don't need them," she tells <em>The National</em>. "Buy quality, or you will end up buying in quantity. Live below your means, especially when you first start to make better money." Another tip is to save at least 10 per cent of your income. When trying to reduce debt, start with the highest interest items first, and keep working at it until it is paid off, she adds. “Ask for help when you need it. Family and friends might not be in a position to help you financially, but might be able to provide a place to stay when between jobs so you aren’t losing money on rent. Housing is usually the biggest expense you will have, and anything you can do to reduce this cost will make it easier to save,” says Ms Renee Bott. Meanwhile, Vijay Valecha, chief investment officer at Century Financial, says two of the most powerful ways to break the vicious paycheque cycle are strict budgeting and tracking your spending habits. He recommends zero-based budgeting, where all expenses incurred must be justified and each new expenditure must perform a purpose and is in line with long-term plans. People looking to break free of the paycheque cycle can consider diversifying their income stream. “The first step is to consider how much time needs to be committed and what skill sets that you possess can churn out to be profitable. Freelancing online is a growing industry nowadays that can be explored as a supplemental income stream,” Mr Valecha adds. Those facing a debt burden must ensure they are reduced to an extent that they do not undermine the savings-to-investment ratio, he says. “Paying off as much of the debt or at least the minimum amount owed each month can reduce long-term deviation from financial goals and create some financial breathing room for yourself,” Mr Valecha adds. People in debt must be mindful of the interest rates connected to their credit card. Prioritise paying off credit card debt over savings as the average interest rates on short-term debt are extremely high and more than you are likely to make through investing, says Mr Keeling. “Be patient – your financial situation will not change overnight. Set yourself short-term goals though, as the progress against these can be addictive in a good way,” he adds. Those in debt can also seek help from a qualified financial planning expert to stay disciplined with budgeting and gain better control of their finances for the long term. “It is important, however, to ensure that they are not commission-focused and qualified because if they are not, they are likely to put you into expensive solutions, especially on contractual commission-paying savings plans that can undo your hard work,” Mr Keeling adds.
