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Deep dive into saving money while working in the UAE

October 30, 2017 Useful Articles

Turn your tax savings into an investment strategy – financial discipline for the conscientious expat saver

Settling upon an investment portfolio is only half the battle; now you have to overcome the temptation to spend.

Many expatriates in Dubai are aware that disciplined saving and investment are key to a cushy retirement. But, surrounded by wealth and ostentatious consumption, savers can easily be wooed by the short-term gratification of spending.

Experts have weighed in how you can master the psychology of temptation and keep your finances intact, as you set goals and stick to your financial plan.

“Delaying the decision to commit to a financial plan is the major obstacle to making your money work for you,” said Rabih Khalek, Head of Accident and Health & Unit-Linked – Fund Management at MetLife EMEA. “As an expat, this is the opportunity to improve your finances. It is not easy, one might argue, but it is also not impossible.”

Planning well and committing to achieving a goal – however small it may be at the start – is essential to gradually growing your cash cushion. By building an intimate connection between your financial goals and the things that matter to you most (for example, saving enough and investing wisely so as to have a financially secure future that will allow you to enjoy your retirement years with your family), you will be able to create a savings plan that works for you.

Regular contributions into a saving and protection life insurance policy, for example, are not only an additional means of financial protection, but a good way of diversifying investments as well. Many people may have the misconception that life insurance is only good for providing your family cash when you pass away, but this product can actually do wonders in your asset diversification strategy.

Certain life insurance products offer investment options based on your risk appetite (conservative, balanced or aggressive), providing different methods of growing your cash stash. In addition, it builds cash value over time, allowing you the option to withdraw part of your investment during or at the end of your plan, helping you to eventually streamline your cash flow.

“This provides the full flexibility that will help an individual start easily and build the desired schemes that are more suitable and sustainable based on his or her risk tolerance and financial aspirations. This comes along with the protection required to maintain the standard of living a person aspires for while accumulating wealth,” he added.

Committing to a financial plan

Not setting a clear financial plan is like getting on a plane without knowing your destination, said Dilip Manjunath, Senior Wealth Architect at Elixir Wealth Solutions and Compass Insurance Brokers.

“[Expats] may know their goals, but they have no numbers assigned to each goal. Creating a financial plan is as important as knowing your destination while boarding a flight,” he explained. “The fact also remains that few people stick to their financial plans when a spending opportunity presents itself.”

The best way to stick to a financial plan, Manjunath suggested, is to attach an emotional goal such as children’s education or retirement independence.

“Once you do that, the temptation to spend money in other areas may be reduced. If you know that a particular savings amount is dedicated to your child’s future or your comfortable retirement, for example, you are less likely to spend the money elsewhere.”

There are often policies available for specific types of savings goals, too, like saving for college. This can help even further.

Another way to stay on track is to hire a financial coach or an independent financial adviser, who can work with you and help you achieve your goals, he said.

Staying committed to a financial plan also boils down to having the right state of mind and building the right habits so you can make the most of your stay in a tax haven like Dubai, added Khalek.

“Again, it is about asking yourself what is best for you and what you can do to maximize your savings. For many people, it may be a two-step process, comprising 1) how much one can save, and 2) how much one must save. The second may look [sketchy] at the outset, [but] think again. It’s [the one] that can make your money grow faster,” he said.

To illustrate his point, Khalek invites expatriates to compare the net effect of their regular savings and the tax liability they may have in their home country against the potential to set aside regular savings plus the tax savings.

“It makes financial sense and to justify that further, think of it this way: If you are to pay tax for working and living in the UAE, who should be the tax collector? The answer is simple – you.”

Executing the plan

Once you have crunched the numbers and know how much you want to save, the next step is to determine what you must do in order to save that amount.

Khalek suggests the following options:

Regular saving schemes – Bank deposits and similar short- and medium-term accounts are good examples.
Regular savings and protection schemes – Mutual funds and life insurance programs give expatriates the opportunity to see their money grow, while protecting their standard of living.

Life insurance – Protects expatriates and their family, and with additional living benefits (including critical illnesses and juvenile insurance), life insurance can also safeguard income and wealth.

Diversified instruments – These helps in making funds more accessible and controlling an investor’s risk exposure.

Automate savings – Instructing your bank to immediately take out the amount and lodge it in your preferred savings or investment instruments is a convenient way of saving regularly.

Have a monthly budget – Only keep enough cash to meet your living expenses for the rest of the month so as to resist the temptation to spend impulsively.

Reaching your financial goal may be as simple as saving with confidence.

Credits: Metlife UAE