It is not uncommon for expats for make a few financial mistakes when they move to another country but proper planning, research and the right advice will mean you do the right things. This is a list of the most common errors and while some may seem obvious, they are all made regularly. Knowledge is power so have a read and make sure you aren’t making mistakes that you could easily avoid.
1. Lack of research before moving
It is important to remember that for most of us that the UAE isn’t just like home with added sun and sand. It may all appear very Western on the surface, with modern shopping malls, fancy five star hotels, and all mod cons but the laws and practices are very different.
Never assume that things work as they do in your home country and be sensitive to cultural differences.
For Brits, you can get loads of useful information by joining this Facebook group. Facebook – British Expats Dubai
2. Living beyond your means
With the almost year-round sun, living in the UAE can feel a bit like being on holiday all the time, especially in the first year. It can be tempting to live in a large villa in a smart area, to drive a brand-new top of the range car, and go to every concert whilst brunching each weekend but these things are expensive and not realistically affordable for most people.
It is far better to avoid the bad habit of overspending from outset, especially when the consequences of bad debt are severe. Of course, you want to have fun but it is best to work out a monthly budget and allocate money to the luxuries once you have paid for the necessities. This way you can have a good time without the guilt, or any negative repercussions.
3. Not planning for bad times
Life can appear to be wonderful but it only takes one thing to go wrong for things to collapse around your ears. That can be an unexpected redundancy, an illness, or a major problem with family back home. With no welfare system in the UAE and with the right to reside here linked to employment, it is especially important that everyone makes provision for themselves.
The first step is to build up an emergency cash fund. Ideally this should be sufficient to cover at least three to six months’ outgoings. As UAE bank accounts are frozen when a job ends, or in the event of death, it is best that these monies are kept outside of the country. An offshore bank account is ideal.
Anyone with dependents also needs to have adequate life insurance, just in case the worst happens. If you arranged this in a home country you need to check that this is still valid.
4. Not reading employment contracts properly
It is too easy to get excited about a new job offer, the prospect of a salary increase, and the promise of endless sunshine but it is also easy to forget to read the small print of a contract of employment.
Not all contracts are the same and there are financial penalties for breaking limited (fixed term) contracts which catch many people out. Your end of service gratuity is based only on your basic salary so if your income includes benefits such as housing allowance look out for how the total is split as you can end up losing out.
Companies can offer quite different benefits, even within the same industry, so if changing job make sure you are fully aware of specifics. Be aware that if you leave a job of your own volition with less than five years of service your gratuity will be reduced if you are on an unlimited contract and you forfeit it altogether if on a limited/fixed contract.
5. Breaking financial ties with a home country
When leaving your home country, it’s easy to think that what you leave behind doesn’t matter or that you can just pick things up again at some point in the future but that is not always the case.
If you close personal bank accounts it can be difficult to open a new one in many countries without proof of address going back at least a year and that can be a real problem on your return. Even when you are abroad there will be times when an account will be useful so it is best to keep one going, with a small balance in it at least.
In some countries, such as the USA, maintaining a credit record is important as that dictates the banking, loan and mortgage options following return. If you leave behind a bad debt it is likely to catch up with you one day.
Returning to a home country, or another country, may have tax implications too but professional advice on the right steps can minimise these.
6. Assuming inheritance laws are the same as a home country
Sharia law is the law of the land in the UAE and applies to all assets in the country. This is the case no matter where you are from so it will apply to UAE bank accounts, property, cars or other items. This may not be what you would wish and assets would be distributed in accordance to Sharia, not personal preference. Finding this out when a loved one has died can be a shock so you need to plan ahead.
A will written in a home country is unlikely to be recognised in the UAE and you may need to make other arrangements to protect yourself and your family. There are options to write wills that are recognised and action that can be taken to protect assets and also dependents. Having proper guardianship in place for your children matters.
In many cases, it is important that life policies are written in trust, something that is too often overlooked.
This is complicated subject but for many of us the rules are very different to what we have been used to. It is best therefore, to be aware of the implications and to plan accordingly. See link at end for more information on wills and guardianship.
7. Shopping as if in a home country
It’s easy to go to your nearest large supermarket and buy familiar brands but this can lead to grocery bills far higher than they need to be. Brands that have been imported from the West can be expensive and there are often local or regional options for the same products at lower prices.
The cost for the boring basics will often vary too and significant sums can be saved over a year by going to different stores and working out which offer the best value for money, especially when it comes to fruit and vegetables and the aforementioned boring basics.
8. Not saving for the future
It is far too easy to intend to get around to planning for your future but time in the UAE seems to go very fast and as the majority of expats have probably moved here for a higher income, it is important to you don’t put this off too long.
The End of Service Gratuity payments can build up over time but it is not an adequate replacement for proper retirement planning. As life expectancy increases, and the ability of governments to pay pensions decreases, it becomes even more important that we provide for ourselves. Simple maths and logic tells us that the earlier we start the better but that does not mean that you need to commit to a restrictive 20-year savings plan.
Surveys show that two-thirds of expats leave the UAE poorer than when they arrived and 20% are saving nothing at all. Of those who do save, a third are only saving 5% of their income. You don’t want to to be these people, so get in control of your finances.
9. Banking errors – not in your favour
Although unsecured credit, by way of personal loans and credit cards is easily available, the consequences of defaulting are severe. There are times when people need to borrow money, and credit cards can be a useful tool, but building up high levels of debt is never a good idea, especially when it happens to support a lifestyle.
The rates of interest on credit cards are high so the smart thing is to repay them in full each month. They should never be used to supplement income. Some cards have worthwhile benefits so by changing you could get better value for money and save on fees.
10. Assuming that being an expat means no tax to pay in a home country
“In this world nothing can be said to be certain, except death and taxes” said Benjamin Franklin in 1789 and it is still true today. Leaving a home country doesn’t necessarily mean you are exempt from taxes or obligations.
Usually income arising in a country remains subject to tax, even if you aren’t living there, and you may need to submit an annual return to the relevant tax authorities.
Leaving, or returning, part way through a tax year can lead to complications with overseas income being subject to tax, so professional advice can be very useful to avoid making a costly error on timing.
A little thought and planning can go a long way in preventing mistakes being made, mistakes that can be costly. I am not saying don’t have fun while living in the UAE, not at all, but planning for your future and financially protecting your family really matters.
I have been advising expats on planning their financial lives in the UAE for over a dozen years, and worked in the UK, a highly regulated environment, for some 18 years before becoming an expat. The right steps and plans matter as, does avoiding the wrong ones, so come and see me for a friendly chat to sort out your financial planning.
I write articles such as this one as part of the holistic personal financial planning service and that I provide to expats, and the general consumer, financial and legal information that I provide in The National newspaper, on Capital Radio UAE, and on the Facebook group British Expats Dubai.
To arrange a meeting to discuss any aspect of your personal financial planning, please email me at firstname.lastname@example.org Please take a look at the other useful articles on this website.
Wills & Guardianship: Where there’s a will there’s a way to protect your family
Sharia Law: Sharia Law & your money in the UAE
Money saving tip: How to save money on your currency transfers
Life cover: Life cover for your family
Why critical illness cover matters: Can you afford to have a serious illness? Facts for the UAE
Renting in Dubai: Need to know: renting in Dubai