A financial fitness plan: The three steps to fix your ills

What to do?

If, after you have assessed your financial position you realize you are in a precarious situation, here are a few things to do:

• Create a plan on how to pay off your debts. “Until you are out of debt, you will not be able to put in place important financial arrangements which will secure your future,” says David Maclaren, an Acuma’s senior financial planner.

• Draw up a budget for debt payments and see which areas you can cut back on. Make sure you stick to your budget. You might need to cancel your weekend brunches, planned shoe purchase or give up your car. “This is always painful but the longer you wait, the worse things will get,” says Maclaren.

• Decide what insurance plans suit your needs and circumstances. Consult a financial adviser who can best guide you through the process.

• Pay yourself first. Set aside an emergency fund. “If you are losing all your hard-earned cash in payments to other people each month, you need to put yourself at the front of the money queue. Pay yourself first by saving. Start with an emergency fund,” advises Steve Gregory of Holborn Assets.

• Allocate money for the other goals you want to achieve. A good start is to consult a professional adviser who can tell you how much money you need to set aside regularly.

“As an idea, however, I believe that as we are not taxed on our income while working in the UAE, everyone should aim to pay at least 20 per cent of their income into an appropriate savings vehicle. After all, it is likely that you would be paying at least this figure in tax in your home country,” advises Maclaren.

If you save Dh5,000 a month into a savings vehicle which provides a 7 per cent annual return, you will be able to build up a capital sum of under Dh1.5 million over a 15-year period.

• Start investing for retirement as quickly as possible. “It ought to be half your age, so a 40-year-old should put away 20 per cent if he wants a comfortable retirement,” advises Gregory. Ashok Sardana of Continental Group says by contributing regularly to a regular savings plan, you can create a substantial capital for your future retirement. “The earlier you start, the more options there are available to you to generate the money you will need to enjoy a happy and fulfilling retired life.”

• If you buy a house, make sure it is paid for before you retire. “You can’t afford home payments when in retirement,” Gregory says.

• For those who have or are planning to have children, don’t forget that you need to save regularly for their future education. “From the day your child is born until your child turns 18, you have 216 months to save for higher studies or college. Every month that passes by reduces the time you have left and increases the amount you need to save. So, start saving early and regularly,” says Sardana.