All fitness regimes start with an assessment of your current health Image Credit: Getty Images

In the UAE, which is home to more than 200 nationalities, there are an increasing number of expats looking for support with the financial planning.

Sarah Lord, Managing Director of Killik Chartered Financial Planners, has put together a new guide aimed at helping globe-trotting expats wherever they are in the world. It includes a step-by-step advice on managing financial ambitions, simple budgeting tips, understanding personal net worth, managing expensive debt, designing an investment strategy and how to make the most of trust funds.

In the first of a three-part series on financial health, GN Focus – Personal Finance shares four steps of Lord’s plan, which aims to help expats living in the UAE manage their money effectively:

1. WHAT AM I WORTH? 

All fitness regimes start with an assessment of your current health. The starting point for any form of financial planning is also knowing what you are worth now.Make a list of what you own and, roughly, what you think it is all worth. This is not talking about a penny-accurate calculation that tries to price each of your stocks – you just need a realistic estimate of the current value of your major assets. 

Financial fitness

• Read part two of the financial fitness plan for UAE expats

This list may include a property (if you have already stepped onto the ladder), a car, investments, bank accounts, a pension plan (if you and/or your employer have started one), jewellery, art and any business ventures you have a stake in. Don’t forget about “hidden” assets, such as cash sitting in a mortgage offset account. The value of these assets can, for the most part, be gathered pretty quickly – you should have recent valuation statements for your investments and pensions for example.

And don’t forget that you may have already estimated the value of many of your household belongings for insurance purposes. Now you’ll need to come up with a list of the amounts you owe to other people. Start with any mortgage debt you have and then add in any personal loans and credit card balances. Again, try not to miss out “hidden debts” that are easily forgotten such as store card debts, outstanding student loans and hire purchase arrangements on cars and/or furniture.

The final step is simple – deduct your liabilities from your assets. The result is, with luck, a positive number that represents your current net worth. This will form the bedrock for your future financial planning and is a number that you should monitor at regular intervals from now on.

2. START BUDGETING
At this stage in our lives, time is still on our side. For example, if you are able to save $250 (Dh920) per month over the next fifteen years and you earn 5 per cent net per year, at the end of that period you’ll have around $66,000. So, how do you find $250 per month?

Budgeting is a bit boring but the benefits are enormous. It can reveal:
• Where your money goes
• Whether you earn more than you spend
• How much more you could be saving

At the back of this guide you will find a short example. List income first (your salary from an employer, any rent you receive from renting out a property or room, and any investment income) followed by your outgoings (for example your rent or mortgage, travel expenses and day to day living costs). The more detail you can include the better. If the gap between your income and expenditure is negative, you are spending more than you earn. Boosting your income may be tricky until you get your next promotion, so it’s often easier to cut back on expenditure. If your budget throws up a surplus, don’t get complacent - you should still boost the amount you are saving.

Here is one approach:
There are certain things that we need to spend money on – food, utilities and travel to work. Then there are the things that we choose to spend money on – holidays, clothes, club memberships, meals out (the nice-to-haves). Ask yourself:

• Do you really use that expensive TV sports subscription?
• Could you use discount vouchers to save money on meals out?
• Are you using your club memberships often enough to justify the fee?
• Do you book holidays ahead to secure the best deals?

Next, your “need-to-haves”:
• When did you last remortgage/talk to your landlord to get a better deal?
• Have you checked if your car/home contents insurance is still competitive?
If you’ve never budgeted properly before, get cracking!

3. CREATE AN EMERGENCY FUND
Most twenty-somethings I know think they are indestructible and have little to worry about. However, as we hit our 30s and 40s and take on more responsibility we need to be ready for:
• Losing a job
• Illness
• Disasters (a flooded bathroom, or a leaking roof)

While you can’t live your life forever worrying about these it does make sense, as a colleague of mine puts it, to “hope for the best but plan for the worst”.

So what to do? An easy way to ensure that you are not caught out financially is to set up an emergency fund that will tide you over while you get through the hard times. An amount equivalent to either three months of your salary or six months is a good starting point. An emergency fund needs to be easy to access so the most obvious place to keep it is in cash via a decent bank or building society account. This won’t earn much of a return but will mean that the money is on tap should you need it. You should also consider that you may have financial liabilities in a currency that is not the same as the one that you are paid in.

Remember that however you choose to store your emergency fund, it is for emergencies only. Do not be tempted to dip into this money to cover your day-to-day expenses or fund a major purchase on the basis that you will “top it back up again later”. You don’t want to be forced into an expensive borrowing arrangement if disaster suddenly strikes. Once you are established at work and earning a good income, give some thought to how you can protect it.

If you are married and/or have other financial dependants such as children, it is also vital to make sure you have adequate life assurance in place. This is designed to pay out a sum of money to your dependants on your death. It is important to review the cover you have in place on a regular basis to ensure that it is sufficient but also that your premium remains competitive. Also, if your status changes you may need to look at fresh cover.

4. CLEAR EXPENSIVE DEBT
“Never a borrower nor a lender be” intoned my grandmother sagely on many an occasion. However, a life spent avoiding debt would also be, for most of us, one spent not attending university, driving a car or owning the roof over our heads. Besides, not all debt is “bad” debt with interest rates as low as they are today.

If, for example, you are paying a low rate to service your mortgage and/or your lender will impose penalties for overpayment, then clearing a chunk of your home loan may not be the best use of any surplus cash.

So here is a two-stage plan of attack:
• Identify and clear expensive “bad” debt as soon as you can. This includes credit card debt, unauthorised  bank overdrafts and any other expensive unsecured loans (e.g. to pay for a car). The annual percentage rate  can be high and the moment you miss a repayment you may get walloped for interest. Since interest charges can reach more than 20-30 per cent per annum it makes sense to prioritise clearing this type of debt.
• Review your mortgage. This can be considered “good” debt because, being secured on your home, the interest rate should be relatively low.

That said, if you don’t keep up the repayments you do put your home at risk. So:
• Regularly review your mortgage deal to ensure it remains competitive. Watch out for a rate change when you come to the end of any introductory offer period.
• If you can afford to, by all means overpay your mortgage. However, your mortgage provider may restrict, or penalise, overpayments and you should set up an emergency fund, as described in stage three, first.

Stay tuned for the next series which will be published online next Monday