x Abu Dhabi, UAEThursday 27 July 2017

Eight tips for not playing the victim in the debt cycle

Superwomen: Often it takes a major life event to start taking our money seriously. When managing debt, I believe in starting with these eight tips.

Women today are living through a money revolution. We can earn in whichever way we please and we're not only earning good money, we're also equally empowered to spend it at every turn.

Many have labelled this generation the She-conomy. The industries experiencing the most growth these days are geared primarily towards women - think fashion, beauty and entertainment as just a few. But this financial independence comes at a price and if not handled with care, our money matters can quickly head downwards.

Often it takes a major life event to start taking our money seriously. My "ah ha" moment came when I took a career break to have a baby. Whether it was the influx of hormones or a new-found need to protect, I saw parenthood as the catalyst to focus on our financial future.

And so I launched www.womenmoneyandstyle.com. Initially it was an outlet to blog about the transition in a language women could understand. Much to my surprise, I found I wasn't alone.One recurring theme with my readers is debt - avoiding it, but more importantly, getting out of it. Ending the debt cycle begins with empowering ourselves with our minds; shifting away from victimhood and acknowledging that we are capable of change.

When managing debt, I believe in starting with these eight tips:

1: Your health is your wealth

There are two types of insurance you should focus on - life insurance and critical illness insurance, whether you are married or single. Should an unexpected illness or accident occur, you'll rest easier knowing your money matters are in order.

2: Automate your savings

Wealth creation begins with organising your finances. By opening an offshore saving structure and a locally held e-saver bank account, you can cover all of your fixed quarterly costs with a slightly better interest rate. Most banks offer both a savings as well as a deposit account - this is essentially a way of budgeting your money to improve your cash flow.

3: Do your credit check

Credit card debt can quickly get out of control if misused and misunderstood. Ask your bank about every specific charge you are paying, such as interest rates on late payments. Nearly all those with bad debts are guilty of not reading the small print.

4: Work out your budget

Think of having a budget as doing a monthly stocktake of your financial status - knowing what's going out and what's coming in each month will enable you to live a better balanced life. Budgeting beginners should try iWallet, a free iPhone app that tracks monthly expenses or note your spending in a small diary.

5: Activate DCA

Dollar cost averaging or DCA is a regular investment or saving strategy, which takes the form of investing regular amounts into a particular investment or portfolio. How does it work? When you invest in regular monthly instalments (say US$100 monthly for 10 months), you are purchasing more shares when prices are low and less shares are purchased when prices are high. As the markets go up and down, you benefit from the market changes in the long term. These fixed investments take the worry out of investing as, over time, regular saving could help average out any market volatility.

6: Understand how compound interest works for you

As Albert Einstein said: "Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't, pays it." Compound interest refers to interest added to the principal, so that from that moment on, the interest that has been added also earns interest. A bank account, for example, may have its interest compounded every year. So an account with Dh1,000 initial principal and 20 per cent interest per year would have a balance of Dh1,200 at the end of the first year, Dh1,440 at the end of the second year, and so on. For the shopper, this unfortunately works against you if your credit card is not paid off. If you knew that a Dh2,000 top will cost you Dh10,000 by the time you finally paid for it, would you have bought it? Probably not.

7: Educate your kids

Money lessons should start earlier than high school. How early? Well, consider starting the topic as soon as they turn five or realise money buys things.

8: Smart style

Be efficient with your clothing budget. Identify your signature look - clothes that fit your lifestyle and look great. Divide them into categories - evening wear, daywear, around-the-house, casual and smart casual. Next, pick out five outfits under each title and organise your wardrobe accordingly. You'll soon find less need for the latest trends, but rather a mere update of what you already own. At the end of the day if you are in debt, do something. Don't bury your head in the sand; it will only get worse.

 

Janelle Malone is a wealth commentator, writer and author. You can read her blog at www.womenmoneyandstyle.com.