People often migrate to Gulf countries with ambitious saving goals. Perhaps they want to pay off their debt or save for a house deposit to purchase a property back in their home country.
However, the lure of boozy brunches, luxury yacht parties and sparkly malls can be extremely enticing. Pair that with homesickness and culture shock and you have the ingredients for UAE lifestyle inflation. Maybe you had big financial dreams when you moved to the Middle East, but you also want to develop friendships, and that often involves drinks after long days at the office? So, you go ahead and swipe that Visa again as you get another round in.
Or perhaps you moved your family here so that you or your spouse could stay at home to care for children and now you are feeling the squeeze? Between school fees, which are only paid for by 16% of expat companies (The Gulf News) and a high cost of living (the UAE ranks higher than Chicago, London, Paris, and Sydney for cost of living according to the Mercer survey), families can soon fall behind in credit card payments and find themselves trapped in the ‘convenience quicksand’ of the UAE’s readily available extravagance.
If you find yourself in this situation, you’re certainly not alone. Although you may feel isolated. People at home may roll their eyes at your ‘tax-free lifestyle’. After all, the stereotypes of grandeur and opulence are rife, and people may assume that you are able to maintain that lifestyle and save bucket loads of cash. Enter reality. Frozen salaries. Decreasing benefits. Very few financial support systems. But alas, do not despair. I have some steps that will help you sort out your finances and get you back on track to achieve your financial goals.
1. Review your goals and return to your values
Discuss these ideas with your spouse and children (if applicable), then set some goals that will start you on the path to your ideal life. It might help to make a vision board – it doesn’t have to be an arty process of cutting and pasting pictures from magazines but can be as simple as compiling some images on to a document and saving it to your desktop so you can access it easily. Your values will start to crystalise and you will (hopefully) get some clarity on where you want to go.
2. Cultivate a positive money mindset
Getting to this point of the journey might be tough. Often people see a large gap between where they are now and where they want to be. This can bring up feelings of guilt, shame, and regret. Instead of ignoring them and using your usual escape strategies (binge-watch Netflix anyone? Amazon spending spree?), allow yourself the space to face them. It might take some work; it might be challenging.
In fact, this can be the most difficult part of the journey and why so many fall back into bad habits and lack the discipline to achieve their goals. If you do this correctly, it should be at least a push outside of your comfort zone. You may have to face up to unpleasant childhood financial truths and uncover hidden unconscious money biases.
You can work through all this though – by reading books and listening to podcasts that lift you and teach you. By daily gratitude journaling and a discovery of what is ‘enough’ for you. You can exit the ‘constant desire for more train’ and pause at the station, take a wander, smell the metaphorical flowers. Gradually, you will feel an easing of the perpetual rat race more, more, more cycle.
This may all sound ‘woo woo’, and you might be wondering why I am writing about gratitude and mindset on a finance blog. It is because cracking money is 90% mindset and 10% numbers. Calculations and numbers are the easy bit. But if you skip this part, I will wager a bet that you will slip back into old habits (and I’m not usually a betting person!)
3. Track your numbers
OK, you feel in a better mental and emotional place and have worked through your relationship with money. Although this is a cyclical process and the development of money mindset is perpetual, you are now ready to move on to step three – the numbers. There are a few key numbers that you will want to calculate in the saving process.
First, what are you heading towards? Most people want to stop working in their jobs at some point, and they contribute into some kind of pension account in their home country. But as an expat, pensions don’t generally exist, and you may have to do some calculations yourself. In step one, we visualised your ideal life. Whether that picture included working or not, it’s useful to know what you need to be saving towards retirement as an expat. Once you have that goal clarified, you can look at splitting savings between long term and short-term savings goals.
Use the x25 rule to calculate your financial independence number. This is where you take your annual expenses (or the annual expenses of your ideal life) and multiply by 25. The number you get is what you need to have saved and invested to not rely on active income (working for money). Let me give you an example:
$40,000 (annual expenses) x 25 = $1,000,000 (financial independence number)
In the above example, the person would need $1 million invested to cross the threshold into financial independence (the point at which passive income from your investments pays for your expenses).
Next, we need to work out how much you must save to reach that goal. Go to a compound interest calculator such as http://www.moneychimp.com/calculator/compound_interest_calculator.htm and play around with the monthly contributions, returns (although a reasonable return is likely 7% in the stock market), and years. Assuming that the person in the example above already has $50k, if they contribute $1k a month for 24 years at 7% return, they will likely finish with over $1 million.
Of course, this is a very simplified version, and there are many factors affecting this number, such as pensions, property investments, inheritance, health issues etc. You may also have multiple short-term savings goals, such as holidays or a car. For short-term savings goals, you can apply this calculation: For example, you want to save $60k for a house deposit in 5 years, so -$60,000/60 (months) = $1000 per month. More detail on this in another post.
Now, once you have a rough idea of how long until financial independence and how much you must save, we need to look at your current financial picture to assess whether you can meet the monthly savings requirements to reach your goal.
Write out and total your expenses for the past 3 months or so (I say 3 months as that gives you a good whole picture of your spending habits). Compare this to your income and you can now calculate your saving rate. Again, I will demonstrate with a simplified example below:
$5000 (monthly income) – $2500 (monthly expenses) = $2500
$2500/$5000*100 = 50%
The person in the example above has a 50% savings rate and $2500 available to invest. Make sure you account for annual or bi-annual expenses and you have an emergency fund of at least 3-6 months of easily available cash. Back to your compound interest calculator to play with some numbers to work out the time it will take you to reach your savings goal.
Again, this is an over-simplified example for demonstrative purposes and people will have a wide range of circumstances, e.g., debt, children’s education funds, change in income etc. all for future blog posts. Each person will have a different overall picture, but by this point you should be getting some clarity about how you are doing in terms of your current spending behaviour versus your savings goal. What if there is some friction there? Or what if you want to optimise this process? On to step four for the next stage of the process!
4. Grow the gap, but get the balance right
By the time you reach this step, you are self-aware, you know your numbers, your goals and consistently work on your money mindset. But let’s say there is discord in your calculations – you are only managing to save a very small percentage of your income or you are still paying off debt. You may again face an emotional and mental block here – how are you ever going to reach those savings goals? This is where you give your money purpose and see it start working for you. Begin to feel empowered.
There are essentially two ways you can increase your savings rate – the first one is by cutting expenses and the second one is by increasing income. We will cover both briefly.
- To cut expenses, first, look at fixed expenses, like your phone bill, rent/mortgage payment and insurance. Call the companies and try to negotiate a lower cost. Shop around different providers. Consider moving or renting a room out if your housing payment is too large.
- Next, look at variable expenses. Are there any easy wins? For example, if you eat out three times a week, can you cut it down to once and cook at home? There are many specific ways to cut down expenses in the UAE, but that is for another post.
So, what about increasing income? You can try to search for a higher paying job, work towards a promotion or start a side hustle. There are many profitable side hustles – consider your skills and how you can add value to people. Can you tutor? Sell a skill to add value to people in the UAE? There are so many side hustles you can do, especially as post-pandemic, many jobs are now virtual and do not require physical presence.
The key with this step is getting the balance right for you in terms of how aggressively you want to pursue savings goals as opposed to spending to enjoy the now. Only you will be able to ascertain that balance and it is not always easy juggling FOMO and YOLO with your long-term savings goals. I advise returning to your values again to figure out what you really want – what will bring you fulfilment both now and, in the future – then do that.
5. Tweak, optimise and stay the course
Phew, what a ride it’s been! By this point, you will have gone through a monumental shift in perception and behaviour, but I can guarantee you that it will serve you now and in the future. Just steps one and two alone will supercharge your savings. These steps will work whether you are an expat or not; however, I think they are particularly pertinent for expats as we constantly and consciously walk the tightrope between now and the future.
The UAE is a revolving door – very few stay forever, so the questions always linger: where are you heading? What is your plan? We juggle the high-quality lifestyle we can sustain in the UAE with the pull of home – of family, of comforts, of nostalgia. No one can provide these answers but you, but I hope that my steps can help you get started down whichever path is right for your circumstances. At this point, you are ready to start investing to supercharge your journey to financial independence. More detail in a future post.
Need a bit of support through these steps?
If you would like to book a financial accountability coaching session to help you work through these steps or stay accountable to your goals, send me an email at [email protected] or drop me a line via the contact form and we can see if we are a good match. Good luck on your financial journey – congratulations on taking the leap.