Building your first budget

A budget is simply a plan for your money before you spend it. It does not need to be complicated: one page, a few categories and a monthly check-in are enough to start.

Step 1: know your income

• Write down every amount that comes in each month: allowance, gifts you can count on, pay from a holiday or part-time job, tutoring or selling things you make.
• Use what actually reaches you (take-home pay), not a bigger headline figure. The 50/30/20 rule is designed for after-tax income.
• If your income changes from month to month, budget using a lower, realistic month rather than your best month.
• In the UAE, the Ministry of Human Resources and Emiratisation (MOHRE) has a training and work permit for students aged 15 and over. Students aged 15 to under 18 need written consent from a guardian, and the employer applies for the permit.

The 50/30/20 rule and where it comes from

• The 50/30/20 rule was popularised by US Senator Elizabeth Warren and her daughter Amelia Warren Tyagi in their 2005 book 'All Your Worth: The Ultimate Lifetime Money Plan'.
• 50 per cent goes on needs: essential bills and costs you have to pay.
• 30 per cent goes on wants: things you choose to spend on, such as eating out, subscriptions and travel.
• 20 per cent goes on savings and paying off debt: emergency savings, future goals and any extra debt repayments.
• It was designed for adults paying rent and bills, so treat it as a starting point and adjust the percentages to fit your life.

Worked example 1: an allowance of AED 800 a month

• Needs, 50 per cent: AED 400 for transport, phone top-up and school lunches.
• Wants, 30 per cent: AED 240 for outings with friends, games and treats.
• Savings, 20 per cent: AED 160 into a savings account, moved on the day the allowance arrives.
• Check: AED 400 + AED 240 + AED 160 = AED 800. Every dirham has a job.
• If your family already covers most of your needs, you might move some of the needs share into savings, for example 30/30/40.

Worked example 2: a student with a holiday job

• Income: AED 1,500 from a part-time job plus a AED 500 allowance, so AED 2,000 a month.
• Standard 50/30/20: needs AED 1,000, wants AED 600, savings AED 400. Total AED 2,000.
• Saving hard for university: needs 30 per cent (AED 600), wants 20 per cent (AED 400), savings 50 per cent (AED 1,000). Total AED 2,000.
• Choose the version that matches your goal and your real costs, then stick with it for at least one month before changing it.

Make it stick

• Pay yourself first: move your savings amount as soon as money arrives, before you spend anything.
• Give every category a fixed limit and check it weekly, not just at the end of the month.
• If you overspend in one category, take the money from another 'wants' category, not from savings.
• Review the budget each month. A budget is a plan you adjust, not a test you pass or fail.
• This is a general method for learning, not personalised financial advice.