Dubai: Every expatriate wants to go home richer after years of working abroad. But with the cost of living on the rise and financial responsibilities piling up, saving for the future often takes a back seat.
Depending on your income level and financial discipline, it is still possible to build a considerable amount of nest egg – even Dh1 million if you save regularly.
According to the money experts at Guardian Wealth Management, by saving for only seven years, expatriates have the potential to more than double their money and make themselves a million, whether it be in dirhams, dollars or pounds.
“Seven years is the average amount of time an international worker stays in the Middle East and is plenty of time to convert hard-earned savings into potential millions,” said Hamzah Shalchi, regional manager of Guardian Wealth Management.
Sounds too good to be true? Pressed for further details, Shalchi explained that achieving the Dh1 million target is possible if the saver commits to set aside a fixed amount of money – Dh5,000-- every month for seven years and take advantage of the power of compound interest. After the seven-year period, the saver, however, should not touch the money for another 13 years.
“If a 30-year-old saver was to save Dh5,000 a month for seven years at 5 per cent interest, but left the pot to mature at 6 per cent interest until the age of 50, he/she would have earned Dh1,000,000. Therefore, it is clear to see the benefits of saving earlier but for less time using the power of compound interest,” said Shalchi.
“The idea is to invest a decent amount of savings every month for seven years and then do not touch it for [another] 13 years so that it accumulates interest, which eventually grows the savings pot into Dh1 million,” Shalchi told Gulf News.
So, the total investment is less than half a million (Dh420,000). Saving Dh5,000 monthly may be too high for many expatriates in the UAE, however.
Nica, who earns about Dh5,000 a month, said there is no way she would hit the Dh1 million target before she leaves UAE.
"That example is applicable only to high-income earners who can afford to save Dh5,000 monthly. That's already my one-month salary," she said.
Shalchi said the figure is just an example to show how people can use the power of compound interest to their advantage. Anyone could set aside smaller or bigger amounts for a longer or shorter amount of time, but the principle is still the same.
“The trick is to start saving as soon as possible and have the discipline to contribute regularly and the patience to leave it for when you need it. This is a long-term savings strategy, not a short-term solution,” Shalchi pointed out.
This doesn’t mean letting your Dh5,000 monthly saving to rot in a bank account. Shalchi said, the key is to ensure the money earns 5 per cent interest. This can be achieved through a multi-asset investment strategy, rather than just a regular savings account, which often provides very low interest rates.
“This means spreading out savings across a portfolio of equities, bonds, property, commodities, foreign exchange, alternative investments and cash. Guardian Wealth Management, for example, uses a financial product called iGuard, which offers an 80 per cent capital protection and is managed by an expert.
Savers, however, are advised to consult a financial planner, in order to come up with an effective savings or investment strategy. Shalchi said it’s possible for expatriates to invest on their own, but this won’t guarantee positive results.
“If you don’t know what you’re looking for, it’s a case of where do you start? You wouldn’t fly a Boeing 777 without correct training so why would you invest your money into something without the correct training?”
“Essentially, the risks are higher doing it yourself and although people are put off with the initial outlay of a financial advisor, it is nothing compared to the potential loss of a bad investment. The point of an expert is to get to know you and advise what is right for you. Your savings plan should mirror your aspirations, lifestyle, [among other things],” said Shalchi.