Whether the economy is in the tank or the times are great, everyone is at risk of losing their job. Redundancies are a fact of life, and it’s always best to be prepared before they happen.
Being out of work is one of the most devastating things you can go through. You don’t just lose your self-esteem, confidence, social status or pride, you also lose a regular source of income, including medical insurance and other benefits.
Getting through unemployment can be more difficult if there are people who depend solely on you for bread and butter. Who will pay for your child’s school tuition? What about your father’s medicine, or your rent or personal needs?
The good news is there are many things you can do before the unfortunate happens, to ensure your spirits, and especially your bank account, are strong enough to sustain a sudden job loss.
Here are a few tips to help you prepare yourself financially for a redundancy:
Take stock and look ahead
Before anything else, it is important to do a holistic review of your personal finances and anticipate what’s going to happen when the salary stops coming in. Knowing the state of your wallet and looking ahead on what happens after a job loss will help you decide what appropriate course of action to take.
Write down how much money you have in the bank or somewhere else that’s readily accessible. Add up all that you have. On a separate paper, draw up a list of your expenses in any given month, including the dues that you have to pay such as your car loan, mortgage or credit card debt.
Total all these numbers and multiply by three or six months, as it may take you three or more months to find another job. Subtract the resulting figure from the sum of your cash reserves. Will your finances be in the red or black if you stop earning money?
If, after you have done the inventory, your personal finances look bad, it’s imperative that you focus on reducing your spending. “Get control of your money before it gets control of you,” advises Steve Gregory, managing partner at Holborn Assets.
“People who fail to plan are planning to fail. Keep daily records of your spending and find out where you waste your money. Then set about reducing spending, and start paying yourself first. If you cannot do this, you will always be at the far end of the money queue,” says Gregory.
An emergency fund is not only for unexpected medical expenses or disasters. It’s useful when the cash flow stops, such as when you are made redundant. You can use it to pay your rent, food, credit card and other monthly bills.
“An emergency fund is the best way to prepare for any emergency, including redundancy. That fund should be equal to three months’ expenses, since it is likely that within three months, someone can find new employment,” says Gregory.
“One needs to save. Call it an emergency, sunny or rainy day fund, there is no escaping the fact that if you want to have financial independence for a period of time when not employed, then only a disciplined savings mindset will see you through what could be a very difficult period,” adds Rupert Connor, senior consultant at Acuma Independent Financial Advice.
Consider investing regularly, too. If you have a “disciplined approach”, you can reap maximum benefits,” says Connor.
Keep your rainy-day money accessible
Investing in stocks, bonds and other financial products may be a good way to build wealth, but you need to ensure that you have enough money to use when you’re out of job or an emergency happens.
That is why you should keep your emergency money in a bank account. Most bank accounts in the UAE, however, hardly offer any interest , so your best bet is to park your cash in banks that offer other attractive incentives.
“Some banks [in the UAE] offer incentives to win cash prizes, which can be preferable to low rates of interest,” notes Gregory.
Another option is offshore banking, which can give you privacy and perhaps help reduce tax liabilities. Offshore banking means keeping your cash reserves in low or no-tax jurisdictions that are outside your country of residence.
It’s often associated with the ultra rich, but Connor says the benefits don’t just revolve around protecting the assets of high-net-worth individuals.
If you bank offshore, you may be able to find better or “more innovative banking products” that yield higher returns. Connor says offshore banking also enables you to carry out transactions anonymously and keep your assets protected against “unsubstantiated lawsuits and unjustified claims”.
While the UAE doesn’t generally tax residents’ incomes, it doesn’t mean people who live in this part of the world won’t benefit from offshore banking.
Connor suggests talking to a financial adviser, who will then recommend a choice of banking institutions that offer tax privileges to non-residents. Your choices may include locations such as the Isle of Man, Jersey, Gibraltar and Guernsey, among others.
Check out redundancy cover
In some countries, it may be possible to take out an insurance that pays sufficient income when a resident is suddenly out of job. However, there is no such insurance available in the UAE.
“Full cover for unemployment or income replacement is not the norm in this region. Insurance in the Middle East is a rapidly growing market propelled forward by comparatively low insurance penetration combined with rapid economic development, and amid the prevailing political unrest in certain parts of the region,” notes Connor.
However, Gregory says your “liabilities may be covered by redundancy insurance to the extent of the liability”. He suggests checking with your bank or credit card company if they provide cover “against the risk of redundancy, so that you are at least aware of the fact.”
Mashreq has a product called “Live Easy” which provides customers some protection in case of involuntary loss of employment.
There are three plans to choose from. If you sign up to a plan that costs Dh60 per month, you will be compensated Dh5,000 monthly for three months ( a total of Dh15,000), if you are made redundant. You can use the money to pay for the rent, groceries and school fees, among other immediate expenses.
Customers have the option to avail themselves of the cover either as a standalone or as a bundled offer with any of the bank’s credit cards or personal loan. However, you need to have a relation with the bank to avail yourself of the product.