The seven steps of effective budgeting

Commit

If you are hopeless at sticking to a financial plan, tell your significant other, parents or friends that you are creating a budget and are committing to stick to it. Invite them to judge your impressive budgeting skills in a few months’ time.

Understand

Allocate one hour to go through all your credit card, bank and phone statements. Highlight any large items and note any late payment or interest charges. Sticking to one hour will ensure you don’t keep putting this off.

Categorise

Identify your main types of costs – travel, food, rent, school, clothes, fun etc. Figure out roughly how much you spent on each over the past three months.

Chop

Figure out the large items that you can cut out easily without really affecting your life. Gym memberships, brunches, drinks, shoes, gadgets, credit card late payment fees and cable TV packages are common targets.

Budget

Create a budget for each category based on your recent months, minus the big items you can chop, and minus 10 - 20 per cent to reflect your newly disciplined self.

Test

Track how you do against your budget, being extra tough on yourself in this first month. Set aside some of what you save this first month as a reward to yourself. Use an app like Wally to make tracking easier.

Refine

At the end of the first month, figure out what worked and what didn’t. Pick one category per month to cut drastically. You may discover that category never needs to go back up again, as you learn to enjoy life without splashing the cash.

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Read more:

'We live on a shoestring in the UAE': Spendthrift expats reveal budget secrets

Dubai resident: 'I retired at 37 after achieving financial independence in two years'

Broke after the holidays? Here are 20 tips to get your finances back on track in the UAE

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