From controlling out of control spending to where to turn to if you’re struggling – expert advice to help you avoid the expat debt trap
The UAE’s tax-free lifestyle has become a magnet for professionals looking for better career opportunities outside of their home countries.
But despite the high-earning potential many residents still find themselves living from pay cheque to pay cheque.
For a large segment, this soon evolves into borrowing to fund a shortfall, and the expat debt trap ensnares them.
Now it may be easy to blame a lack of discipline or poor understanding of basic finances (we certainly don’t remember being taught personal finance in school), but certain factors such as the rising cost of living in Abu Dhabi and stagnating wages have their part to play too.
Take control
“While it’s always important to build up a stash of savings, no matter where in the world you are, economic circumstances may not always allow it,” says Jon Richards, CEO of finance comparison website compareit4me.com.
“You could be in the UAE on AED 10,000 a month, pay out AED 3,000 on debts, another AED 3,000 on accommodation and bills, send AED 2,000 home and be left with AED 2,000 to live on. That doesn’t leave much room for saving.”
Finance experts have always advocated for saving 10 percent of one’s salary into savings.
Saving strategies will, of course, differ from one person to another depending on the circumstances. Trying to save while servicing high-interest debt, though, is akin to swimming against the tide.
“If you notice a large chunk of your salary goes out on debts, get them paid off quickly,
and then make a habit of sticking the money that you would have otherwise used to pay off debts into a savings account,” advises Jon.
“Otherwise, if you can afford to save, but you aren’t very good at it, simply come up with a savings budget and be really strict with yourself on sticking to it.
“Decide how much of your monthly salary you’re going to put away, and stick that amount into a savings account as soon as you get your wages.”
To start, devote time to sit down and assess where your money goes on a daily and monthly basis. Jot down everything – from bills, groceries, recreational activities, transportation, even that occasional latte from the nearby coffee shop.
By having a clear picture of your spending habits, you’ll be able to pinpoint the essentials from unnecessary expenses and adjust your budget accordingly.
While there are lots of fancy apps for budgeting available, some people use the simple envelope system. This method sees them divide up spending categories – food, clothing, gas, utility bills, etc. – and allocate specific amounts for each and put them in envelopes.
This method instils discipline as you’re only allowed to spend based on the allotted budget for the particular expenses. It’s also recommended putting off making a large purchase for a week or two. Impulse triggers most shopping habits. And how many times have we excitedly bought something on a whim, only for it to be left sitting idle gathering dust?
Even better if you push yourself to save money for that fancied item, you’ll have enough time to think through if it’s really necessary and if it is, research the best price available.
Save your effort
Banks offer different interest rates for savings accounts so take extra time to check the best among the field. Even a minimal difference in percentage can be a lot in the long run.
However, you are likely to find that savings accounts alone might not be the best way to ensure that your money works hard for you.
If a loan is truly required, Jon recommends comparing available options on the market to find the best loan for you.
Make sure to ask questions – don’t be afraid to write them down before the meeting with the bank representative – and do not sign until you understand the terms and conditions thoroughly.
It is good to know what your rights to renegotiate the loan would be should you find yourself struggling to meet your obligations.
“Everyone knows that, in the UAE, if you get into unmanageable levels of debt, you could end up with a police case for failing to keep up with repayments. When it comes to debts, interest payments are often a killer for a lot of people,” he warns.
“To avoid paying high amounts of interest, it’s worth working out which financial products you’re signing up for. A personal loan, for example, will likely come with higher interest rates than a car loan.”
He adds, “When it comes to credit cards, again interest rates vary a lot, so it’s worth comparing options.”
Most of us find personal finance tricky – and it can be – but with discipline and adopting a practical lifestyle, it certainly can be mastered.
Luckily, it doesn’t have to be all guesswork. There are resources available aimed at educating the public about personal finances.
Visit comparison websites such as compareit4me.com and souqalmal.com, as well as the Financial Planning in the UAE blog at financialuae.me. Firms like lotusadvisoryuae.com and creditexpertuae.com provide representation for in-debt clients.
“My view is to treat finance as simple maths,” Jon explains.
“Work out what you have coming in, and try to reduce the amount you have going out. When you start to see some level of personal wealth, brought about by diligent saving, it’s incredibly satisfying.”
