Despite being in a tax-free environment, many people do not maximise the benefits of putting aside money Time to fix your savings
A lingering gap in the savings market and a lack of awareness about responsible saving are putting UAE residents at risk of mismanaging their hard-earned money, say financial experts.
“People are not aware of the range of investment instruments available to help them with their savings and in the event of a personal emergency,” says Snehal Urankar, Investment Advisory Analyst at Nexus Group.
While people with more than $1 million (Dh3.67 million) of liquid investable assets have access to private banking and those with less are taken care of by premier banking products, the lot with below $250,000 tend to fall through the cracks.
The UAE continues to attract career-oriented expats in comparison to other markets globally because of the economic and political stability it offers, according to HSBC’s 2017 Expat Explorer survey. The country remains popular despite increased economic instability created by the drop in oil prices.
“The UAE — Dubai in particular — remains one of the most preferred locations for expats, not just in the region but globally,” says Nikola Kosutic, Research Manager at Euromonitor International in Dubai.
A large part of the UAE’s appeal is the ability for people to improve their earnings, which in turn means a higher disposstyle able income but most importantly, the increased potential to save. In fact, according to HSBC’s report, 52 per cent of UAE expats said the move had increased their ability to save towards longterm investment goals (14 per cent above the global average). However, despite the statistics, the reality can often tell a different story.
“Regardless of the prime opportunity being an expat in the UAE presents and the positive intentions when people first arrive, we have found that in practice the reality is much different,” says Hamzah Shalchi, Regional Manager of Guardian Wealth Management in a media release last year. “Yes, people are earning more, but the temptations of a more luxurious life- are seeming to outweigh the prospects for a better future. Therefore we urge expats, particularly newly arrived expats, to make saving a priority.”
When expats migrate to the UAE, putting money away in a current account or fixed deposit is often perceived as the safest and most convenient approach. However, there are a number of disadvantages to this method, including that savings kept in a current account are subject to continuous erosion due to inflation. Currently, inflation in the UAE is higher than deposit rates offered by banks.
While cash is king and an important part of any portfolio because of its ability to cushion the blow from unexpected events,
this should form a relatively small portion of an individual’s liquid assets and should be kept in the right currency. “Cash should be something you keep as an emergency liquid supply to deal with unexpected events such as a major systemic financial disruption,” says Urankar.
At the end of the day, diversification of assets is key. It is important to understand your future financial needs, says Steve Cronin, founder of Wise, a non-profit online forum for financial education and support in the UAE. “Saving for your one-cheque rent should be low risk,” he says. “Money set aside for 10-30 years can allow for more risk, riding out the ups and downs
over time. Avoid putting too much in one type of investment or country, e.g. gold, property, Chinese stocks.”
One of the key rules of investing is not timing in the market but time in the market, says Shalchi. “Savers should think of their investment goals long term as the longer an investment is held, the greater the probability of receiving desired returns.”
It is also important to be conscious of cost and suspicious of complexity of savings plans promoted by banks and financial advisers for large commissions. “They have lots of hidden charges and it’s not easy to get your money back,” he says.
“Anyone who says you will make more than 20 per cent a year is a scammer. Take responsibility for your finances and educate yourself. Invest monthly or quarterly. Try to avoid upfront fees, exit charges and funds with management fees above 1 per cent.”