4 typical financial mistakes made by expats
Constant good weather, a bustling social scene and a good, tax-free income - it's pretty simple to see just what the appeal of the UAE is to young and ambitious expats. But while the terms "YOLO" and "treat yo'self" are embodied between the valet parking and the all-you-can-consume five-star hotel buffets, it's never a bad idea to make sure you manage your income with smarts.
To avoid common mistakes often made by the country's expatriate community, we spoke to the regional manager of Guardian Wealth Management, Hamzah Shalchi, on what to look out for and how to prevent them:
1. Have a plan
Perhaps the most common mistakes made by expats on arrival they don’t have a plan. Things are different here, people tend to get paid higher, tax-free salaries, but it is worth remembering that the general price of living is higher. This can be a bit of a shock to the system for some, and ultimately results in simple mistakes and discourages saving.
Solution: On moving to the UAE, or any new country for that matter, expats should set a plan in place. This should include a saving goal; what expenditures are (car loan, rent or deposit) and what incomes are in correlation with the expenditures. From this a realistic amount for monthly savings can be set and you will know where you stand, without this simple idea, people can run into serious difficulties.
2. Tax at home
Another key mistake made by expats is sending money back to a place where it is taxable. For example, some expats send money to their pension schemes in the UK, this ultimately means you could be liable to pay tax on it in the future, now that would not be a pleasant surprise.
Solution: For an expat an offshore fund can be a great way to manage your money in a legitimate and tax-efficient way. If you are an international worker then transferring your pension into a Qualifying Recognised Organised Pension Scheme means it can be put under professional guidance and that you will receive increased lump sums and greater investment freedom.
3. Short sighted investments
Living in a place that is developing at such a fast pace, such as the UAE, means that there is plenty of room for investments. A mistake that people tend to make with their investments is that they concentrate on short term fixes. Economies can go up and down and with that if people do not see speedy returns they will panic and sell.
Solution: When investing, one must obviously consider the time they are entering, but more importantly how long they spend tied to that investment. Your investments should involve targets and be long-term plans. The longer an investment is held, especially with property, the higher your chances of receiving your desired returns. Just because an investment temporarily dips below the profits you are making, it doesn't mean you should drop it. A loss isn’t a loss until it is sold at a reduced rate of the initial investment price.
On moving country it is essential to make sure you are covered with general insurance - and also life insurance. In other countries it can be mandatory, so you can check if this is transferrable and if it will cover you whilst living abroad. In some cases people feel there is no need for insurance and don’t have it all.
Solution: Prepare for life and death. Life insurance is essential to protect yourself and your families, if you have one. Not only does insurance protect loss of earnings, but in the UAE, which operates on Sharia Law, transferring wealth after a death can prove harder than one would think if an offshore based will is not completed.