Many of us muddle through our financial lives, not focusing on what matters the most, so this article is designed to help you sort out your financial priorities.
You have probably thought that there are some issues you need to address but it is common to be stuck in limbo, not quite sure what to tackle first, or a to have a vague to-do list but are unsure where to start.
I am often asked what are the most important topics to focus on so this is a guide to what you may need to look at if you haven’t reviewed your personal finances before, or haven’t done so for some time. What should you do now and what is most important?
All too frequently I see people who have been sold long-term savings plans without having been given the right advice to address more immediate issues. The most important consideration is to focus on what could go wrong tomorrow and then to take steps to protect you and your family. This doesn’t have to be expensive but this is what proper, ethical, financial planning is all about.
The focus in my work is advice, not the selling of plans, so we start by looking at your overall situation and agreeing the steps you need to take. It isn’t always easy to do all that you want but a little clarity on what is most important could get you on the road to true financial independence.
Build up an emergency fund
I class this as more important than anything else when we are living in the UAE, without any kind of ‘safety net’. Even if you have debts, provided you are making at least the minimum payments, it is important to build up a stash of cash that you can fall back on in case of emergency.
There is less job security in the Middle East and if you have no reserve funds being made redundant can be an immediate disaster. I recommend that everyone builds up, and maintains, an amount on deposit equivalent to three to six month’s outgoings. These monies should be immediately accessible and kept in an account that will not be frozen if you leave a job. For many people, an offshore bank account is ideal.
More info on offshore banking here: The Benefits of offshore banking for expats
Sort out your paperwork
Start by getting together a list of all your existing bank accounts, life policies, savings plans and pensions, together with insurance policies, mortgages and credit cards. It will help to set up a schedule of some type that you can update from time to time.
When doing this you might like to sort out a regular filing system so you keep all your financial papers in one place. This will make it easier to manage your money in the future. This needn’t take up much space as many items can be kept as soft copies these days.
Do you need to manage your budget?
If you do not feel in control of your expenditure, or you don’t know where your income is going, then it would be wise to review your monthly outgoings. Not only are you likely to find that you can save money, it feels good to be more organised.
This article from December 2016 will be of use: Tips on reducing spending & better budgeting
Living within your means really is the answer to living well and being financially secure.
Repay those debts
This is so important, especially as non-payment of debt is a criminal offence in the UAE. If you are simply paying the minimum monthly payment on a credit card all you are doing is paying interest and not reducing the amount owed. Unless you pay more than the minimum you will never repay the debt.
The rates of interest on credit cards in the UAE are high and whilst cards can be a useful tool, they can too often be over-used and misused. Ideally you pay the cards off in full each month so you don’t pay interest – and waste money. It may take a while to get to that point but it is very important to get debts paid off.
Personal loans and credit cards should not be used to supplement monthly income. Although credit is too easy to obtain, and too easily offered by banks, the responsibility for repayments rests with the individual.
Have you organised your wills?
If not, then you know that it is something that needs to be done. Many people procrastinate as they don’t know where to start or exactly how the UAE’s Sharia law will affect them.
I work with experienced lawyers but have a process in place for my clients that vastly simplifies the whole set up and saves money. We make it painless and in most cases, although the wills are written by a lawyer, you don’t even have to meet with them.
Find out more about the options, process and costs in this article:
Even if you have relatively little in the way of assets at the moment, no doubt you are planning on building them up? If you have children it is important that provision is made for them. A will ensure that in the event of your death your assets end up where you want them to be, not according to the rules of where you are living or where you are from.
Do you have enough life cover to protect your family?
If you have debts or financial dependents, then you need life cover. Simple cover for most people is not costly and provides peace of mind. You will want to ensure that in the event of your death your family is not left with debts that they cannot pay or without sufficient income to live on.
Remember that life assurance is not about the money per se, but about what it can do for your loved ones. Putting a roof over their heads, paying the bills, paying school fees, and taking away worries.
Many plans have the option to add critical illness cover and that should also be considered as it can be a very valuable add-on. Take a look at this article for some statistics that you may find of interest. Can you afford to have a serious illness? Some facts for the UAE.
Plan for your financial future
Even if retirement seems a long way off, the sooner you start saving for the later years, the less it will cost you in the long-term. With ever increasing life expectancy, the onus is on us as individuals to make substantial provision to provide for ourselves as government support is limited.
There are various options and ways to save or invest, and you do not need to commit to anything for 20-25 years. The best option depends on your specific circumstances and requirements, but above all you need to be savings significant amounts, even if you start off quite small.
Many people are put off investing due to the restriction on the plans that have historically been available to expats but I can now offer very flexible investment options with wide fund choices and next to no exit penalties.
Review & manage existing investments
If you have existing investments are they being managed properly? One of the main reasons why investments do not perform well is that they are not reviewed on a regular basis. Are your monies still invested appropriately taking into consideration the current market situation and your own circumstances? Do you have pension schemes from previous employers and don’t know what to do with them? Have future tax considerations been factored in. All investments should be reviewed annually in detail.
Much of financial planning is simply about being organised. Get your papers in order, work out what you need, and then take independent professional advice to ensure that you will achieve your financial goals.
As a qualified and experienced Independent Financial Adviser I can be objective about your situation and my role is to guide people to make the most of their finances in the way that best suits their personal situation and requirements. Together we can put in place a strategy to deal with your priorities, protect your family, and plan your financial future.
Do you need a review of your finances? Contact me on firstname.lastname@example.org to arrange a no obligation meeting, and the coffee is on me.
Podcast of Dubai Eye show which included this topic Dubai Today on Dubai Eye 14/08/17 Financial priorities + managing debt