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Mind Your Money - Your financial gym: Budgeting for a stronger financial future

BLURB: Just as athletes use supplements to boost their performance and health over time, consider investments as the financial supplements that can accelerate your path to financial freedom

Greetings, dear readers of 'Mind Your Money'. In our quest for financial wisdom, today we step into the world of budgeting, where the rubber meets the road on your journey to financial freedom. As your trusty personal financial adviser, I'll not only guide you through the intricacies of budgeting but also connect the dots between spending, savings, investments, and real-life strategies that are as engaging as they are effective.

Our previous articles have been steppingstones on this financial path, exploring the avenues of savings, the fortresses of insurance, the treasure troves of investments, and the keys to unlocking real estate opportunities. Each insight has armed you with the knowledge needed to navigate the UAE's financial landscape with finesse.

Budgeting, then, is akin, to the regular training an athlete undergoes to achieve peak physical fitness. It's the discipline that ensures you're not just surviving but thriving in the complex world of personal finance. Let's dive into the core principles of budgeting, anchoring them with real-life scenarios from the UAE.

Much like dedicated athletes who increase their training intensity as they grow stronger, your budgeting strategy must evolve as your income flourishes. This phenomenon is especially relevant in the UAE, where expatriates must secure their financial futures without the safety net of social security.

Imagine your budget as a dynamic workout plan. As your income expands, allocate a higher percentage to savings and investments. This aligns with the UAE's unique financial landscape, where diligent budgeting is your compass on the journey to financial independence.

Just as athletes use supplements to boost their performance and health over time, consider investments as the financial supplements that can accelerate your path to financial freedom. They're not just tools for growth; they're the turbochargers of your financial engine.

Athletes don't quit the game when injured; they recover, excel, and seek advice from coaches. Similarly, in finance, setbacks shouldn't deter you. Learn from your budgeting mistakes and allocate wisely. Just because one arrow missed the target doesn't mean you abandon archery.

Tips & tricks : The rules of the thumb

Let's simplify complex financial concepts, much like breaking down a workout routine into easy-to-follow steps:

The 20/30/50 rule: As a starting point, the rule states that you should spend up to 50 per cent of your after-tax income on needs and obligations that you must-have or must-do. The remaining half should be split up between 20 per cent savings and investments and 30 per cent to everything else that you might want. As your income grows, progressively your 20 per cent should become 50 per cent.

The 4 per cent rule: To retire in style, you need a stash that's 30 times your annual expenses. For example, if your yearly expenses are Dh120,000, you'd need Dh3.6 million invested. Withdrawing 4 per cent annually while the rest grows, it's your ticket to financial relaxation.

Rule of 72: Use this rule to estimate how long it will take for your investments to double in value. Divide 72 by your expected annual return to find the approximate number of years.

Rule of 10 per cent minimum: Allocate at least 10 per cent of your income to investments and increase this by 10 per cent every year. Just as you allocate time for exercise, allocate your income for financial growth.

Rule of asset allocation: Adjust your investment portfolio's asset allocation based on your age, shifting toward less risky assets as you approach retirement. Example , if your age is 40 years, you deduct 40 from 100, i.e 60, and ideally your investment should have atleast 60 per cent allocation to equities and 40 per cent to debt instruments.

Rule of emergency fund: Always maintain an emergency fund equivalent to a minimum of 6 months' worth of income. It's your financial safety net, just as rest and recovery are essential for physical fitness.

Consult an adviser: Just like biggest athletes and sports personalities have their coach and trainers, it becomes imperative to have a trusted adviser who can guide you to achieve your financial goals and objectives.

In conclusion, my financial fitness enthusiasts, budgeting is your financial gym, and your budget is your personal training schedule. By embracing these principles and anchoring them in the UAE's financial reality, you're on the path to achieving your financial goals, just like an athlete striving for excellence.

Stay tuned for more engaging insights and strategies on financial fitness, mental wellbeing, and physical health right here in the UAE. Remember, your financial journey is a marathon, not a sprint. Keep your goals in sight, adapt, and you'll thrive financially and personally.

Sandeep S. Jadwani - ACSI, CIB (head of Investment Advisory, Habib Investment Limited – Regulated by DFSA) is qualified, experienced and an award-winning financial adviser to High Net-worth Individuals. Been in the UAE for over 15 years and guiding individuals to efficiently and effectively manage their finances to achieve their financial goals. He believes financial fitness can ultimately lead to mental fitness.