500 Jordan Dinars

Step 1: Save 500 Dinars

The best way to tackle a big challenge is to break it up into smaller pieces. Otherwise if you try to do everything at once, you will fail. So tackling our financial situation needs to be divided into steps, and these steps need to be done in order as they build on one another—otherwise they do not work.

As we all know and have probably experienced, a rainy day will come and you need a rainy day fund. The car breaks down, the boiler stops working, you stop getting a bonus from work, you get fired, you need an operation that the insurance doesn’t cover or you have a big co-payment… Things happen! This is not—or should—not be a surprise: So be ready. You need an emergency fund. Obviously, 500 JD isn’t going to be enough for all big events, but it will be enough for the small ones until your emergency fund is fully funded in Step Three.

The ‘emergency fund’ is not for buying things or for vacations! It’s for emergencies only!! Many of us use our credit cards for emergencies—that’s how the banks convince us of the need to keep our credit cards. Some of us consider gifts for Eid or clothes for our growing kids as emergencies. These events are not emergencies and should be budgeted for in your budget. Real emergencies are those things that we can’t or don’t plan for and have no control over, such as a car breaking down or a medical condition with a big co-payment.

The first major step to your financial independence is to begin the emergency fund. A small start is to save 500 JD in cash… fast! If you have a household income less than 750 JD per month, then start with 250 JD. Again this amount is not major, but it will cover most of the small emergencies and will deter you from using your credit cards when these emergencies happen. And that’s the key:

No more borrowing! You have to break this cycle.

OK, we’ve worked hard, saved hard, and now we’ve got the 500 JD… Now what…?

‘Hide’ it! No matter what you think, you can’t keep the money handy you’ll almost certainly end up spending it. I put mine in a savings account with no access to it from my checking account—i.e. if I write a check that is not sufficient, the bank won’t pay out on it.

If you put your emergency fund where you can easily get your hands on it, your emergency fund will be spent on a whim.

Saving 500 JD is not a huge step, so do it quickly. Don’t let this step take months! If you already have this money in other forms, such as stocks, certificates of deposit, or anything other than liquid, then get it out. We are not going to become rich from 500 JDs but we do want it to be liquid in case of an emergency.

OK, you’ve got your emergency fund together, but what if you’ve then moved on to Step Two but you had to use your emergency fund to fix the boiler? Well, if this happens, stop Step Two and return to Step One until the full 500 JD is replenished. Only then can you go back to Step Two. It seems like a small thing to say, but if you don’t do it like this, you’ll get used to not having this small buffer and be back to old habits of borrowing to cover real emergencies.

Some might think this step is easy and simple. For some, this is the first time they have ever had enough control over their money to save it. In my case it was a difficult step: I’d never saved purposefully and when I started, I was in debt and had great difficulty not tapping into the emergency fund. But as I mentioned earlier, you need to keep this fund filled up. Eventually, you’ll find it becomes a habit.

For me, this step was very important and emotional: It was the one thing that I could do to prove to myself that I really could take control over my financial situation. The joy… the relief from that is actually hard to put into words. When you’ve saved your 500 JD, then you’ll know what I mean.

Once you start your 500 JD emergency fund and are ready for the rainy day, you can move on to Step Two and start the Debt Snowball reduction. We’ll talk about that next time. But until then, it’s time to get saving!

Budgeting for Jordanians

Budgeting for Jordanians

One last subject (I promise!) before we start the First Step to financial independence: budgeting.

I know many of us hate to budget or don’t know how to budget, but trust me, it’s one of the most important tools to help you in your quest for financial independence.

People who win at anything have written goals, and a written budget for the month is your money goal. As Zig Ziglar says, “If you aim at nothing, you will hit it every time.” You need to tell your money what to do and how to behave.

Set up a new budget every month. Don’t try to have the perfect budget, because we never have a perfect budget. The goal of the budget is to spend every Dinar on paper before the month even begins. So every Dinar you earn needs to know where to go.

If you’re married, you need to agree on the budget with your spouse. I had to get mine on board, and believe me, she wasn’t too interested at the beginning! I had to explain to her our financial situation for her to buy into my plan. You’re a team: If you don’t get your spouse on board, it will be almost impossible to win.

Once you both agree and decide on the budget, the key thing is you both need to stick to the budget—no matter what. If something comes up in the middle of the month that causes the budget to need changing, get together and make sure you both agree on the new budget. But you still need to balance the budget. For example, if the car breaks down and costs you 200 JD to fix, you need to cut down on something else such as dining out or buying clothes for the same amount.

Let’s make a budget!

The first thing that anyone who wants to make a budget must do is to compare their income versus their expenses and know where their money is going. There are simple Excel sheets you can use to do that, as well as more sophisticated software (see below).

To get you started, you can begin with this free Excel budgeting spreadsheet, which will help you calculate how much you spend each month and compare it to your income.

At the end of the day, a major key to wealth is to spend less money than what you earn, i.e. your expenses need to be less than your income. Simple, right…? Of course, we all know that! Yet, we don’t do it because we subsidize extra expenses using debt. Well, that’s got to stop.

So, after calculating your monthly income and monthly expenses, were your expenses more than your income? Many are in this category and probably that’s why you’re reading this blog. If not, then you’re already doing well but I’m confident you can still learn more from this blog on how to invest the extra savings.

OK. If your income is 1,000 JDs and your expenses are 1200 JDs, that means you spend an extra 200 JDs each month with money that you don’t have! Your job now is to find ways to spend 200 JDs less. The goal here is to get your expenses and income to at least be equal. This is called a ‘zero-based budget’.

You need to be able to track your current expenses and income to be able to budget well; the software mentioned below can help you do both. Even before I decided to do the Total Money Makeover I had a habit of tracking my income and expenses. I tracked every expense: all my cash and bank accounts had to balance. So I keep receipts of everything, including small things, such as coffee or even shawerma, and enter them into the accounting software.

Once you establish some history of your income and expenditure, you’ll be able to budget more accurately. You will know where you’re spending your money and find areas for savings. And you’ll be surprised just how much we spend on unnecessary items.

So now you can sit with your spouse and go through the details of your monthly budget. Find out what is necessary and what is not, and make sure that after adding up all the expenses in the budget that they don’t exceed your income.

Tools for budgeting

I have been using Microsoft Money Plus Deluxe for the past 4 years. This is a great and powerful software. This software is no longer supported by Microsoft—the automatic account update with banks and credit card companies no longer works. But for us Jordanians this is unnecessary since most of our financial institutions don’t have integration with budgeting software anyway. You can still get an unsupported free copy from Money Plus Sunset Deluxe.

You can find other personal finance software which I found on the web. Click for best paid personal finance software and for best free personal finance software.

People might argue that there are many ways to make a budget work. But the reality is pretty simple:

  • The key is to find a system that works for you and then stick with it.

I know this seems like the difficult part, and perhaps initially it is; but ultimately you will benefit so much more—beginning with the fact that as you balance your budget in the first few months, you’ll probably feel pretty pleased with yourself… And so you should!


Education Insurance Plans in Jordan

Many of my friends ask me what I think of education insurance plans that pay for their children during university and also provide cover in case harm comes to the parents.

I tell them:

Education plans offered by insurance companies to save for university, are a joke! In fact, they are one of the worst financial products available.

I decided to show my friends just why this insurance product is such a lousy investment, so the other day I invited an insurance salesperson to give me an offer on an education insurance plan.

The salesman showed up on time along with a colleague of his. They started explaining to me about the benefits of the plan and how I will save enough money for my child’s education while maintaining peace of mind should something bad happen to me.

Then, the salesman opened his laptop and asked me basic questions, including how much money I expect to need during the years while my child is attending university. They also asked me my age, the age of my child, how many years will my child be attending university, and other basic questions. They also asked me for my currency of preference. They offered two plans, one a Jordan Dinar-dominated plan, the other a US Dollar-dominated plan. They said that they guarantee a minimum return of 4.5% for the Dinar and 2.5% for the USD. I decided to go for the Dinar since the return looked more attractive.

Below are the answers I gave them (inputs)

          • Current parent age: 36
          • Gender of parent: Male
          • Currency: Jordan Dinar
          • Payment mode: Monthly
          • Current age of child: 5
          • Amount needed for university tuition per year: 20,000 JD
          • Start university at age: 18
          • Number of years at University: 4 years
          • Amount needed for school tuition per year: 100 JD (this number covers school tuition in case of death; I opted for a very low number to reduce the insurance part and focus on the investment part).

After crunching in the data in his laptop, here’s what he came up with:

Total yearly payments (premiums): 4,956 JD (Monthly payment: 413 JD [4,956/12]) and an output table.

University Insurance Outputs

Let’s analyze the output table:

Total Premium: is the amount of your annual accumulated contributions. That is the 413 JD x 12 months x the number of years. So for example at year 8 you would have contributed 39,648 JD.

Guaranteed Cash Value: this is the value of your investment at the insurance company at any given time; notice how the value is zero in year number one and how it is less than what you have contributed until year 8. You have to wait until Year 8 for the insurance company to start giving you a positive return on your investment!

6.5% Cash Value: here the return is a bit higher than the Guaranteed Cash Value, and the breakeven year is a year earlier. But still you have to wait 7 years until you start getting back your investment. The 6.5% is an assumption and it could be lower or higher, as the salesman explained. But I wouldn’t want to bet on it being higher: I asked how my money would be managed—they said it would be managed in real estate by a company in Qatar and by buying local stocks. But crucially, I realized I have no control over the investment whatsoever and there is no way to measure the performance of the investment, which means that the insurance company will actually be incentivized to pay close to the minimum guaranteed.

I expressed to the salesman my disappointment at the commitment required and how it takes years to break even. Of course, the salesman justified this, citing the high cost of managing the account and the insurance part of the investment. He kept assuring me, to focus on the peace of mind rather than the investment. Which, of course, is nonsense.

Nonsense…? Why? Well, simply put: you can get this peace of mind by buying a term life insurance for a fraction of the price! Take me as an example: Given my age and gender, I can get life insurance (including disability benefit) for a value of 80,000 JD (20,000 JD x 4 years) for only 240 JD per year, i.e. 20 JD per month (though this number would likely vary for you by age, gender, and health condition).

Breaking down the salesman’s monthly 413 JD into life insurance and investment, we have 20 JD for life insurance and 393 JD for the investment part. Let’s compare the insurance company’s investment part with other investment alternatives. Let me show you how 393 JD a month performs using different investments:

  • Putting money under the mattress: Of course this is a terrible idea! But I’m adding it for illustration purposes.
  • Putting money into a savings account: I also don’t recommend this option since the interest rate is less than the inflation rate (and especially the inflation rates of universities).
  • Putting money into an investment account, such as a mutual fund (which I will talk about in more depth in later blogs) at a conservative rate of 8% (some of the underlying assets of these funds averaged 11.5% in the last 75 years; this investment is in USD since we don’t have such investments in Jordan). 

Unversity investment comparisons

As you can see from the table above, putting your money into any of the investment alternatives is better than the bank insurance investment. Even putting the money under the mattress actually fares better in the first 8 years!

Not only do these investments give you a higher return but they also give you 3 more crucial things:

  • They give you access to your investment.
  • They give you control over your investment.
  • They offer transparency in the performance and allocation of your investment.

Yet, some might argue that an education insurance plan is a ‘forced saving method’ and will keep you from touching this money for reasons other than your child’s education. Well, sure, that’s a point. But what I would say is that you can’t afford not to be able to save.

If you follow Dave Ramsey’s 7 steps, then what you’ll come to find is that you won’t have a problem saving: You’ll build in habits for saving and you will have much more control over your investments and their outcomes.

So, education insurance plans are lousy investments! You can do much better putting your money in other investments. In step 5, I’ll explain exactly how you can go about investing for your child’s university. But until then—please, PLEASE do not give your money to these insurance companies! Of course, they will do whatever it takes to sell you their product: After all, they’re making a whole load of the money YOU should be making.




Personal Finance in Jordan: Saving Less, Borrowing More…?

Personal Finance in Jordan: Saving Less, Borrowing More was the subject of a classified report that was sent from the American Embassy in Amman to the department of state in Washington, DC dated December 11th 2007. Some of the things mentioned in the report:

On average, Jordanian households spend $1900 more than they earn annually, and pay for the gap with loans.”

Consumer use of banks is high, more as a vehicle for debit and credit cards than for savings.”

A Jordanian official was quoted in the report saying that he “is nervous about the growth of borrowing… Most Jordanians need to pay more attention to debt management than to wealth management.

As this report was written more than five years ago, you could imagine how worse off we Jordanians are now—especially with the bad economy.

It is human nature to want it and want it now! We are becoming like Americans, consumers, which is to live for the now and worry about paying for it later; and debt is a means to obtain the “I want its” before we can afford them.

In Jordan we are continuously being bombarded by the banking industry to buy their products. They show us on TV and newspapers just how ‘better off’ our lives would be if we would take a personal loan, a car loan, or a credit card loan. They show us pictures of prosperity, telling us that we can afford this car, that house, and that vacation now… and pay for them later. Banks have sold us this idea over and over—so much so that it has become normal. Jordanians now can’t imagine a car without a payment, a home without a mortgage, and a lifestyle without a card.

When something is said over and over again, it becomes a myth, and people eventually end up believing it. In this case the myth is that debt is a tool and should be used to help create wealth and prosperity.

I too was a victim of this myth where many of my well-educated friends were convinced, and even convinced me, that the only way to become rich is to take on debt and buy real estate. Yet, based on a survey involving the Forbes richest 400 people in America, 75% of them said the best way to build wealth is to become and stay debt-free. Now, this is the opinion of rich people, and not your broke cousin, coworker, or friend with an opinion!

And this applies even more so in Jordan—especially when the banks here charge us outrageous amounts of interest, ranging from 10% on car loans all the way to 30% on credit cards. Not only do they charge us interest but they also add administration fees, annual fees, collateral fees, and even stamp fees.

From what I know is that successful businesses barely make double digit returns, so can anyone tell me how the normal Jordanian can make enough return to pay double digit interest rates, high fees and at the same time become rich?

Debt is a risky business. Once you buy into it, you can spend a lifetime paying it off—no matter which way one looks at it. That is, unless we decide to and commit to paying it off. And we will see just how we can go about doing that effectively using Dave Ramsey’s Debt Snowball in Step number 2; as he says:

Your largest wealth-building asset is your income. When you tie up your income, you lose. When you invest your income, you become wealthy and can do anything you want.”

– Not a line you’ll hear in the bank commercials…


Are you financially healthy? (وضعك المادي كيف)

Are you living paycheck to paycheck? (من شهر لشهر)

Do you have a big mortgage payment? (دفعات بيت)

Do you have a big car payment? (دفعات سيارة)

Do you have a personal loan? (قرض شخصي)

Do you have maxed-out credit cards? (ملمّت الفيزا و الماستر)

Do you not have a savings account? (حسابك مقشط)

Do you not have a budget? (مش عارف الدنانير فين بتروح)

Are you struggling to meet the above mentioned obligations? (بتلاخم)

Most importantly, do you not have a plan as to how you will pay your bills and meet your obligations should you lose your job or face a life-changing event…?

Assessing your financial situation

Before we start discussing Dave Ramsey’s 7 steps to financial freedom, we first need to realize that there is a problem. 90% of solving a problem is to realize that there is one in the first place.

So If your answer is yes to some or all of these questions, then you really need to take a good look in the mirror and be honest with yourself—and answer the question of whether you are financially healthy or not.

Before being able to make a change, it is very important to realize and assess your financial situation. Many people think they are fine until some kind of crisis happens, such as being laid off from work or a major medical issue.

In my case, I realized my financial situation was not healthy, with most of my income going toward bank payments, my having difficulty paying the bills, and not having any savings for a rainy day. I knew something was wrong, and whatever I was doing was getting me into a deeper hole. But few of us are willing to change before we are forced to. We first have to see the need to make drastic changes in our life.

I decided a change was necessary. So I started looking for ways to improve my financial health.

As Dave Ramsey said: “Winning at money is 80 percent behavior and 20 percent knowledge.”

I have done it, hundreds of thousands of people have done it. And there is no reason why you cannot do the same if you are honest with yourself and decide to make that change.

Don’t wait until a major event hits you. The time to start is now when it is easier and more manageable.

Jordan Dinar

The Smart Dinar

The Smart Dinar is a blog devoted to personal finance for Jordanians.

This blog is not about get-rich-quick schemes nor is it about taking short cuts! Instead, what you will find is information about personal finance and related topics that apply in Jordan.

I (along with readers) will share stories about budgeting, debt elimination, saving money for emergencies, retirement, and children’s college. We’ll also discuss practical investing.

There are hundreds of money blogs out there, but none of them are specific or targeted to our needs. We Jordanians live with a combination of elements that make a unique situation: First, we live in a country where our average income is a fraction of those in developed countries and of those of our neighbors, while the cost of living is higher than those same countries. Furthermore, our culture is different in that many of our norms can place undue financial burdens on us.

So… Who am I?

My name is Ramez Qubain, and, quite simply, I’m just a Jordanian guy who one day found himself with too much debt, too little savings and no control over his personal finances. When it finally became too overwhelming, I began reading personal finance books, hoping to find answers.  I came across a book, one day, by Dave Ramsey, titled “The Total Money Makeover”. Well, I thought, that sounds good! Apparently, Dave had helped hundreds of thousands of Americans to get out of debt and even to become financially independent. Well, that sounds like something I could do with! I studied his book from cover to cover and was convinced that this guy had something to offer.

So I started following Dave’s methods in mid-2009, and it took me around 24 months to get myself out of debt. But I got there! And I even have some savings. Dave has 7 steps that are proven; his method has worked for hundreds of thousands of Americans… and even worked for me. Here they are in a nutshell:

  1. 500 JDs emergency fund: An emergency fund is for those unexpected events in life that you can’t plan for: the loss of a job, an unexpected pregnancy, a faulty car transmission, the boiler blows up, the air condition stops working… the list goes on and on. It’s not a matter of if these events will happen, more a matter of when.
  2. Pay of all debt using the debt snowball: This is the most challenging and most important step. We’ll discover how to budget and how to pay down our debts, smallest balances first, excluding the house mortgage.
  3. 3 to 6 months of expenses in savings: Once you complete the first two steps, you’ve built serious momentum. From here, you look to build up a full emergency fund that covers 3 to 6 months of expenses.
  4. Invest 15% of your gross income into retirement: When you reach this step, you’ll have no payments—except the house—and a fully-funded emergency fund. Now it’s time to get serious about building wealth.
  5. College funding for children: By this point, you should have already started Step 4—investing 15% of your income—before saving for college.
  6. Pay off your house early: Now it’s time to begin chunking all of your extra money toward the mortgage.
  7. Build wealth and give: It’s time to build wealth and give like never before. Leave an inheritance for the children, and bless others now with your excess.