Investing in your future: Are you living the dream or living in a dreamland?

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There’s no doubt about it… virtually everyone who makes the move to live and work in bustling Dubai can’t help but get caught up in the elaborate and sophisticated lifestyle that the UAE’s most captivating emirate boasts. Whether it be Lobster Thermidor prepared by one of Dubai’s many Michelin Star Chefs, or 18 sun-blessed holes on any of the championship golf courses on offer, the average expat spends a significantly higher percentage of their income on luxury goods than their peers back at ‘home’.

There is nothing wrong with enjoying this new found luxury lifestyle, but the question has to be asked: Are you taking full advantage of what is potentially the best opportunity you will ever have to save for your future?

My experience in the region is something of a ‘Groundhog Day’ scenario – the average person initially envisages a time horizon of staying in Dubai for around a year or two. Once the reality of a life in the sun combined with tax-free earnings sets in, people often find it difficult to leave. ‘One more year’ becomes two more, then three, then…. (you know the rest)… This is often when the warning signs start to appear. Many people tell me that their initial plan was to work in Dubai during the healthiest years of their life, with the opportunity to earn a tax-free wage far greater than that they would earn back in their country of domicile, thus allowing them to allocate a percentage of this extra income towards their financial plan and future financial independence. In reality, however, they often admit this is sadly not the blueprint that they choose to follow.

In order to make the most of the tax-free environment in Dubai and manage your finances you should initially focus on three key areas:

Firstly, do you have outstanding debt that needs to be paid off? Debt should always be considered as high priority when looking to create a robust financial plan.

Secondly, do you have a sustainable level of liquid emergency funds in place? Focusing on between three and six months earned income is often a good rule of thumb here, although everybody’s personal situation is different. Do you rent or own your house & car? Do you have children? Do you have medical and other essential insurances in place? If so, what is the monetary level of this insurance? A very important consideration here is the implication of Sharia Law on expats. If the worst were to happen to you in terms of a brush with the law or even death, your assets domiciled in the UAE are often frozen and the process to release these assets is very time consuming, hugely complicated and often a very expensive process. Make sure that you have set up a Sharia Law compliant will to run alongside your emergency fund and other assets. Speaking to your financial planner is imperative if this is something that you haven’t already done.

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Once these considerations have been addressed, you then need to consider your monthly outgoings and liabilities. You can either formulate a simple spreadsheet or ideally, something I recommend trying is to keep ALL your receipts over the calendar month and place these into a fruit bowl or empty drawer at home. Sit down at the end of the month, calculate exactly how much you have spent in the past month and appraise this as honestly as possible – I think you might find this an interesting and eye-opening use of your time!

Happy with the above? Then the next step is to sit down with a fully qualified and experienced financial planner who can work in partnership with you to create a disciplined and achievable financial plan. There are numerous areas where value can be added, but by taking baby steps over reasonable time periods, this doesn’t have to be a scary process – many of my clients actually find enjoyment in involving themselves in the financial planning process as the months and years go by. Regular reviews in terms of appraising a client’s risk appetite and ever-changing objectives for the future are required. If these objectives are met from day one, the whole scenario becomes an education for the client and no longer a weight on their shoulders, but an on-going process that they can take great pride in developing.

A common query is what percentage of your income should you be saving. Again, this has to be specific to the individual and their personal situation. What age are they? Do they already have an Investment Portfolio in place and if so, how many years has this been in place for? When ideally would they like to retire or start phased retirement? What does their future look like in terms of enjoying a very extravagant lifestyle or being happy to live a relatively basic life? Where would they like to live in the future? Are they planning on starting a family or do they have children already? Would they like to leave a legacy for their loved ones or a particular charity on death?

This list goes on and is often a work in progress – what somebody thinks their life is going to look like in the future is often very different at age 40 compared to a decade earlier. One consideration after appraising all the variables above is to say to yourself: “I would be paying tax back at home – could half of this, most of this or even all of this be allocated to my future financial plan?”

Again, a disciplined and achievable timeframe coupled with a sustainable level of funding is of paramount importance here. The best advice always needs to consider flexibility too – after all, it’s a sad reality that all of our worlds can be turned upside down in an instant, whether this be in terms of health setbacks or a changing of the guard in the workplace. Being able to put your head on the pillow at night and not to worry about how and why your financial plan is structured is something that sadly too many people don’t fully understand or sometimes even take the time to consider.

As already touched upon, numerous other factors need to be considered when living and working in Dubai – the additional costs for children’s schooling from a young age being a primary example. Many companies financially assist their employees in full or in part, but school fees certainly aren’t cheap in the UAE and ignoring this fact can only lead to a serious financial headache or even migraine building up on the horizon. Medical costs are another expense that far too many people are under-prepared for. Unlike in the UK where taxes pay for the NHS, the lack of health insurance in the UAE can be a crippling financial blow to people if they have not taken the right advice to account for the eventuality of a sports injury, miscarriage or road incident on Sheikh Zayed Road.

So next time you’re tucking into a spot of foie gras washed down by another bottle of bubbly on a Monday night, make sure you enjoy it, but also make sure that the dreamland lifestyle you’ve grown accustomed to doesn’t become the heartburn that shapes your future financial independence.

(Written by Neil Stewart, Senior Financial Planner, ACUMA Wealth Management)

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