This month’s article is aimed more towards new expatriates based in the UAE, although I am sure others will be able to relate or benefit.
Like most expatriates, the main reason we move offshore is simply to achieve more income compared to our previous jurisdiction. From my experience, there are two main financial objectives made from the outset.
The first is to save as much money made in a tax-free jurisdiction as possible. Then return to our home country, or proceed elsewhere, with an accumulated lump sum, to set up a future, which possibly wasn’t available to us prior to relocating. The second is to stay offshore for a longer term, whilst enjoying a better lifestyle and planning for a more comfortable retirement.
Both seem very achievable on paper, but what a lot of people do not realise, especially if they have never visited the UAE prior to the move, is that the UAE has a vibrant and expensive social life to offer. This can take back in one hand what it gives us with the other and worse still much more than we actually earned. The majority of my clients are offered a significant salary increase when moving offshore, and also live in company-provided accommodation, which could be deemed as an upgrade. What some people fail to realise is that they may not be truly prepared to instantly deal with such a significant increase in their earnings in such a short amount of time. This can lead to our monthly outgoings becoming increasingly higher, and making purchases that would be deemed as a luxury as opposed to a necessity.
The other problem we have to contend with is the ease with which we are able to borrow from Banks in the UAE. For those of us who are Western expatriates, we are accustomed to loan applications being somewhat of a lengthy process, that takes into account our credit rating and monthly outgoings against our monthly salary. However, a credit card in the UAE is offered as part of a current account application with a loan being offered very soon after. These applications can be completed within a matter of hours.
My advice on avoiding falling into such traps which believe me is very easily done is to resist the temptation of making purchases against borrowed funds. No matter how big or small the purchase, it is wise to wait until you have had at least 6-12 months living experience and a clearer understanding of the affordability to borrow.
Key questions you should keep in mind when making purchases are:
• If you have to borrow in order to buy, can you truly afford the item?
• Is the item a necessity?
• Do you actually already own it?
A simple technique whilst we are gauging our affordability factor is to open a savings account with your bank and regularly deposit a fixed amount towards your desired savings goal. This type of account will not give you massive returns with regards to interest, but it gives immediate access to your funds whenever necessary. After 6 months you will have a much greater understanding of your disposable income and then can look to move an affordable monthly amount offshore to achieve the financial objectives set out from inception.
The important thing to remember is that most of us are giving up quite a lot to be here, whether it be family, friends or the structured lifestyle we have enjoyed for many years. Therefore, I am quite certain we will agree that to move offshore to accumulate more debt than we came with would be most unwise.
By Aaron Crotty
For additional information, contact Aaron Crotty at: a.crotty@gwm-intl.com
