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Common cents

The not-to-do list

Gulf News

The beginning of the year is always about doing new things, whether it is changing your diet, learning a new skill or embarking on a new project.

By now, you have probably started following through your to-do list for 2013. But have you ever considered the things that you should not be doing this year?

While you’re determined to stick to your gym membership and healthy eating habits, it would also help keep your finances in shape if you resolve NOT to:

Ignore your net worth

It may be a drag to say this but knowing how much you can afford to spend each month or where you stand is fundamental to keeping your pockets intact. Ensure that your outgoings don’t exceed your income and that you have enough leftover money for emergencies and savings. There’s only one way to do this: budget. If you haven’t done it yet, don’t wait any day longer. Grab a piece of paper and pen, and write down all your expenses and subtract them from your monthly income. If it turns out you have a deficit, it’s time to fine tune your budget or cut back. The more you know your limits and what aspects in your spending are out of control, the better able you are to prevent future financial disasters from happening.

Skip payments

We always have something to pay at the end of the month, be it the housing rent, utility bills, insurance, child’s tuition or credit card dues. Whatever they are, pay them regularly and on time. Never skip a single payment. It’s an essential step in avoiding potentially serious financial problems, as well as building credibility to the companies and creditors you’re dealing with. Missed payments carry penalties and once they pile up, it can be extremely difficult to keep up. Even if there no fines, it is easier to settle dues in smaller amounts than to produce a huge lump sum.

Borrow more than you can afford to pay

A loan or credit helps us do so many things: own a car, get a new house or start a business. Before you sign up for a loan, however, it is important to know if you can comfortably keep up with the repayments. If you borrow more than you can afford to pay, it is easy to miss monthly dues that can negatively impact your fiscal health. To ensure you’re not setting yourself up for trouble, calculate your debt-to-income ratio. Here’s how to do it: Divide your monthly loan repayments by your gross income, including your bonuses and other regular incentives. If you make Dh8,000 a month and need to raise Dh1,000 to pay your car loan, and mortgage, your debt-to-income ratio is 12.5 per cent.

Buy things you don’t need

It’s one of those habits that are difficult to quit. We often wander off to the mall and unknowingly take home stuff that end up gathering dust and being forgotten. Wasteful consumption is embedded in our DNA. In Australia alone, consumers spend $10.5 billion every year on things that are hardly or never used, according to the Australian Institute. In 2004, nearly $3 billion worth of fresh food, as well as $630 million worth of unconsumed take-away food, ended up in the trash. To reduce your impact on the environment, and help save money at the same time, stop buying unnecessary items this year. Consider borrowing, renting or buying second-hand if you’re looking for something you rarely use. If you spot an attractive item at the store that you don’t need, ignore your impulse to buy and your bank account will thank you for it.