In this week's issue

How to avoid leaving Dubai broke

Caught in the ‘upgrade’ culture, expats are trading their present for a bad future. Read on if you don’t want to be one of them

  • By Jay B. Hilotin, Chief Reporter, XPRESS
  • Published: 20:35 January 23, 2013
  • XPRESS

  • Image Credit: Gulf News
  • For illustrative purposes only

Dubai: If you earn Dh20,000 per month and have no money left in your account by month end, you are likely to retire from the UAE no better off than a tea boy.

Yes this is the sad truth for thousands of expats who come here with dreams of making big money, only to end up broke with hardly any savings to write home about, after years spent on living the high life or lured by shopping festivals and discount offers.

Those who succumb to the temptation to upgrade — to a nicer car, a bigger villa, pricier signature items — are in effect trading their present for a bad future, experts say.

Take the case of Richard, a European working in Dubai for seven years. The 42-year-old has no children, but has racked up a combined debt of Dh210,000 on five credit cards, and has a Dh90,000 car loan. His rent, food and bills take up most of his Dh24,000 paycheque, with nothing left at the end of the month.

Dev, 40, a divorced airline executive, gets free accommodation and does not have a lavish lifestyle. But family commitments prevent him from saving anything.

He earns well, has no debt, but also has no savings — not even an emergency fund.

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“When you come and live and work in Dubai,” Reg Ormond, managing director of financial advisory The Wealth Practice, said, “the attraction of tax-free earnings would suggest that the majority of people would build up decent savings to help them in their future.”

But the fixed costs of living eat into monthly salaries, according to Ormond, who runs free seminars on financial planning. “Large shopping malls and the ‘eating out’ culture — to name just two of Dubai’s attractions — take away whatever is left.”

The temptation to upgrade to a bigger apartment/villa, a nicer car — and the high cost of schooling for children — is also a constant challenge for expatriates.

So how does one get out of the rut? Ormond advises people to take a step back: “Accept that your time in Dubai with tax-free savings may be limited. Maximise your time here by listing your financial priorities.”

Most debt-laden expatriates have also had to part with their end-of-service (ESB) benefits, which banks collect at the first sign that a person has lost his job.

Pension fund

In 2010, UAE authorities and the International Labour Organisation discussed establishing a pension fund for expatriate workers to guarantee they receive their ESB.

In March 2012, a senior official of the Department of Economic Development in Dubai (DED) said they have completed a feasibility study for an expat pension fund, which was to be launched by end-2012 after clearance from relevant authorities. If pushed through, Dubai could become the first Gulf state to launch a pension fund for expatriates.

UAE lawyer Mohammad Al Suwaidi that a pension fund is a step in the right direction. “It’s a good idea, but it needs sound regulations from the start.”

Al Suwaidi said, however, that clubbing an employees pension fund with their ESB may be problematic, since by the definition an ESB is only due when an employee’s service comes to an end and grows over time as an employee’s salary rises.

Protection

Other experts also feel a pension fund would help protect expats in their old age.

Steve Gregory, managing partner of financial consultancy Holborne Assets Ltd. said most expats (especially Western) are capable of saving at least 10 per cent of their salary, but are reluctant to alter their lifestyle.

“There are some who spend a lot, get into debt and leave broke,” said Gregory. “This applies to younger Western expats and people earning less than, say, Dh8,000 per month who are struggling to survive, especially when they send money home for families.”

Gregory, whose career in financial services spans 30 years, gave a rare insight into the spending habits of UAE expatriates.

UAE-based Americans and citizens of G7 countries, he said, do save and invest at least four times the equivalent of their counterparts back home.

He cited the example of Andrew, a 55-year-old from South Africa, who moved to Dubai in 2006 with his wife Lea. The parents of two started to save $500 (Dh1,836) per month, and then grew it periodically. In recent years, Lea has paid all of her salary into their investment plan to prepare for retirement. Their joint investments now exceed $300,000, with three or four more years of saving before going home.

British expatriate Robert Keay, 56, managing director of customer service consultancy Ethos, blames the weather and the many “distractions”. “For much of the year it’s too hot to do anything else — either you stay at home or you can go to the mall. If you go to the mall, you don’t just go there to walk, you’re tempted to spend and buy things. “Expats also face the situation of paying everything in advance — rent, school, etc.

Many expats come from countries where there are no school fees. Not many people have the luxury of their company paying for these expenses so they end up borrowing money to pay for these things. People come here and they do not realise that you need to pay for a lot of things in advance.”

Another major culprit, Keay said, is the relatively easy access to credit cards.

“There’s no central database in monitoring the bank customers’ personal borrowings ... it allows expats the opportunity to borrow too much money and too easily.”

DO’S and DON’TS

Pay yourself first. Include savings in your budget. Investing in National Bonds is a good start (it prevents you from buying things you don’t need, like more expensive cars or accommodation).

Think of it as rescuing the old man/woman (you in future) from the follies of the young man/woman, (you today).

Saving between 10-20 per cent of your pay is a good guide.

Have emergency funds – between two to three month’s salary — in a deposit account

Diversify. Do not to put your ‘eggs in one basket’. Hierarchy of diversification: a) Cash in the bank is secure and accessible; 2) owning a property, which generally increases in value; 3) combine other assets classes such as stocks and managed fund, as these offer good long-term growth potential

Take financial advice. This is important to get a wider view of the options available for you (insurance, mutual funds, stocks, or a mix of these)

Live for today, but also plan for tomorrow. Life is about balance. Enjoy your time in Dubai, but work on personal financial plan

Balance your own interests against your family’s demands/needs. Due to cultural traditions among Asians, many send home a fair percentage of their salaries, which can sometimes be a drain and pressure on those people living here

Don’t buy a new car on mortgage, especially if your existing one still works fine

WHY IS INSURANCE IMPORTANT?

• There many types of insurance, but basic protection should cover income (or loss of it), health, life and investments. Buy insurance that works for you

• Some insurance packages also offer investment-like features, allowing you to gain from market growth while protecting yourself and loved ones

WHAT IS CURRENCY HEDGING?

• Hedging is a way to guard against foreign exchange fluctuations. If you invest in a fund and the growth is good over a 12-month period but the currency moves against your base currency, then this growth could be wiped out.

• In Dubai, where the majority of people are paid in dirhams (fixed against the US dollar), a practical approach is to use dollar as the currency to start your savings. Then you could switch to your base currency in the future when the currency exchange rate is to their advantage, said Ormond

 

HOW TO INCREASE YOUR SAVINGS

• Consider saving as a mandatory expense

• Open a savings account that’s harder to get to than your checking account

• Systematically (monthly) save to that isolated account on a regular basis

• Pair your raises with increase in savings

• Set milestones with rewards

• Write down expenses in three to six-month goals

• See where your money is going (A daily coffee may cost you only Dh12, but if you add that up over a one-year period, this could set you off Dh5,400)

Before buying electronics, jewellery or fashion items on impulse, wait 30 days (you might realize you don’t need those things at all. This could save you thousands by the end of the year)

 

WHAT IS SAVER’S REMORSE?

Saver’s remorse is non-existent. No one complains of having money in the bank. But if you buy a new phone/item during a promotion, you may regret it soon afterwards

Comments (16)

Your comments
  1. Added 13:20 January 24, 2013

    There's truth in each and everything i have read here, am only two week old in Dubai looking for employment though with no success as yet, but this acts as a standard warning for me, now i know wat takes up the monies and in the end u get to look as poor as u came!! Now i know wat to do. Big up to the Writer.

    Muzeeyi Vicent, Dubai, Uganda

  2. Added 13:06 January 24, 2013

    Will just like to say save wisely, take care while investing here as you may be kicked out any day and all your money can disappear without a trace. My advice is send money home just enjoy here no is here for life. You cannot get citizenship - at the end of the day you are an expatriate live with it all the best and dont be blinded by the glitz and the glamour - make your own dream - thats save your money for home whereever that may be.

    RK, Dubai, United Arab Emirates

  3. Added 11:52 January 24, 2013

    Good thought about the future. It is time to plan pension schemes for expatriates.

    Anil, Dubai, United Arab Emirates

  4. Added 11:50 January 24, 2013

    I do agree with the fact that one should value his or her hard earned money, what I do not completely agree is with the '' Only Savings theory''. In the beginning savings can be a step in the right direction, but once you have enough savings in your bank account where do you go from there? I suppose that is the bigger question. This article has only covered half of the topic of managing funds but has failed to address the other half on how to generate passive income. One cannot live of his or her savings in case of a job lose or retirement, there must be an active plan to generate income with savings invested in a capital growth where you run two parallels side by side 1- Investments where you have a steady capital appreciation. 2- A stable system of passive income is created from the above without touching the capital invested. A good example of this would be investing in Real estate (wisely, Not to buy because everyone was buying and then you burn yourself and curse everything around you.) There are lots of good books available especially one from Mr Robert Kiyosaki best seller 'Rich Dad Poor Dad'. My sincere suggestion to the ''young and free'' lot , if you have been fortunate enough to land a job in Dubai, do enjoy your time here and spend wisely on your investments - There are always great opportunities here. Best of Luck to all.

    Shehryar Iqbal, Dubai, United Arab Emirates

  5. Added 10:12 January 24, 2013

    Great eye opener...thanks for wonderful article and I am sure it will open the mind of many people here .

    gaurav, dubai, India

  6. Added 09:34 January 24, 2013

    If you don't want to go back home broke you should always follow these steps 1/ always remember you are an expendable expat and sooner or later will have to go. 2/ Never deal with banks for other than deposit or withdrawal 3/ Enquire about what happens to defaulters in Dubai when they couldn't pay their home rent or service loans. 4/ if you sign any paper or contract make sure that exit and termination terms are clearly indicated .. all that will might not be enough to send you home with money, but at least it will insure you could exit in dignity when you need to go.

    Sole, Dubai, United Arab Emirates

  7. Added 09:25 January 24, 2013

    This is very true for most expats here.... This is the sad truth... In my case, Im not one of those having five (5) digit salary but I do savings as a mandatory on a monthly basis.... If it gets tight in a month, I make sure in a quarter I will achieve the minimum target.. I am not into high-end items, but rather I find myself researching what and where I can start small investment here in UAE.... I tried mutual funds thru one bank and keeps me away from spending it coz at least 6 months I have to keep it to appreciate the value :) I am interested in this kind of topic and i love to join any seminar as well to help more educate on how to handle finances.... and how to get out from the rut....

    gel, abu dhabi, United Arab Emirates

  8. Added 09:10 January 24, 2013

    Advertising has us chasing cars and clothes, working jobs we hate so we can buy stuff we don't need. We want to show off to people on how easy it is for us to splurge our money in a race to show who's got more, and if that dosent do it, then we set out to borrow from banks and show off even more.... thats fashion for the masses today and that's what gives you a social status upgrade aparently as per the present generation and media representations of the ideal man or woman who's supposed to have it all.

    habib, doha, Qatar

  9. Added 09:05 January 24, 2013

    Well written and easily understandable.

    RK, SHARJAH, United Arab Emirates

  10. Added 08:20 January 24, 2013

    This is a worldwide problem, not just specific to Dubai. Even the local community has extreme problems with debt. Your many articles about debt pardon for locals proves that point. The problem is that people are actually not paid enough. A family of 4 should earn no less than Dh45k per month combined salary. If they can manage, they should live in Sharjah and send their kids to a school which charges less than 15k per pupil per year. They should own a pair of cars each costing no more than 60k UAE. I dare to say that those strapped with debt probably were those who purchased property instead of just flipping it. The lure of riches is about a real as a bad Hollywood film.

    Drew, Dubai, United Arab Emirates

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