Crisis will spur fiscal planning by families

Given the impact of current economic upheaval, layoffs and salary cuts on the lives of people, there has never been a greater need for planning and ensuring your family's monetary security.

Financial experts say that though not many people in the region are heavily into financial planning, the current market conditions will act as a stimulus for advanced fiscal family strategies.

Emirates Business spoke to some experts to find out what one can do to secure one's future and how to prepare for the worst financial scenarios like job loss.

Nigel Watson, Sales and Marketing Director, Nexus, said: "Just about every person in the UAE is experiencing the effects of the current economic climate in some form. However, history shows us that following every downturn there is a level of recovery that often exceeds the downturn. While it can be a nervous time for many people, the best advice right now is to sit tight and see the tough period through. There are actually many opportunities starting to come to the market, which will help add liquidity into the system and the government is continuing to invest heavily in public services and infrastructure."

Research released by Friends Provident International indicated that a significant 42 per cent of the market have failed to concentrate on long-term financial security for their families.

The Zurich Wealth Monitor revealed that while 45 per cent of middle-aged respondents in the UAE and 40 per cent in Bahrain have invested in retirement saving plans, the majority are still "over-optimistic" and "under-prepared" about their retirement.

The survey further revealed that more than half of the people interviewed do not view any change in their retirement plans due to the economic crisis.

However, experts are optimistic that this will change as the current crisis makes more people realise the importance of better monetary planning. Watson said: "For many UAE residents, this is their first experience with such volatile markets. However, these conditions provide a strong stimulus to advocate advanced savings strategies and insurance policies."

Talking about how nationals and expatriates alike can ensure better family monetary security, Carlos Sabugueiro, CEO, Middle East and Africa, Global Life Emerging Markets, ZFSG said: "With adequate life cover, pension schemes, proper estate-planning and regular savings plans to help towards events such as children's education, retirement and any future emergencies, individuals can safeguard their families and stabilise their financial futures.

"For expatriates there are many savings and investment products available in the market that are portable and flexible across various currencies and taxation policies as well as inflation. This reinforces their financial stability should they consider relocating again. Employers can also assist by offering good employee benefits packages that include death or disability in service and a pension scheme."

Watson added: "Even though the economic climate is affecting many people both in their domestic situation and in business, the basic principles of managing money remain constant. Expatriates may have financial commitments outside the UAE and that would be something else to consider. It is also worth checking that you are receiving all of the appropriate tax advantages, while you are residing outside your home nation.

"It is also wise to diversify your investments and not put all your eggs in one basket as this will help to protect you against a sharp fall in any one particular area of your investment portfolio."

The experts outlined some fiscal strategies for families to follow for a secure future.

They advise people to set down on paper their income and expenditure so that it gives families a fair idea of where the money goes each month, and how much of it is invested or saved. A general guide is to put between 10 to 20 per cent of each month's incomings into savings and investments to provide a strong financial future.

Experts say that many people are surprised at how much they spend on "non-essential" items when they go through this process.

Families can also adopt regular savings and investment vehicles, which are unit-linked to a range of funds and provide families with access to a sum of money for a future event. There are insurance products that secure the policy-holder with a range of protection benefits, to secure against their death, illness, disability or that of a family member.

There are even corporate offerings, such as pension and death in service schemes that take care of families upon retirement or any untimely event such as death or disability.

Experts also say that if families are experiencing financial difficulties currently, perhaps due to a family member losing their job, the best approach is to deal with the financial obligations by speaking to their creditors.

Watson said: "Contact an independent financial advisor who will take time to help you go through your financial situation and recommend solutions.

"If you are finding it difficult to meet your current payments on credit cards and loans, speak with the banks concerned – you will be surprised how understanding they will be and you may be able to negotiate either a payment break or to have the debt extended over a longer period of time.

"It may also be worth considering talking to a financial advisor with regard to putting all your debts into one source for which you may be able to get a lower rate of interest and/or repayment over a longer period to enhance your immediate cash flow."

Talking about how to ensure long-term saving plans will not be affected even if people lose their jobs, Sabugueiro said: "In addition to adequate protection cover around critical illness, permanent total disability and spouse death benefit, there is also a need to save regularly for an emergency situation, such as the event of losing your job. A number of options are available in the market on saving plans, including the flexibility to reduce or even cease premium payments for a certain amount of time without penalty. Once the policy owner is able to contribute again, he can renew his policy, continuing where he left off."

Watson summed it up: "People need to review their current investments and see which areas are most exposed. You can get insurance to cover you in the event of loss of earnings and this may be worth considering if you are committed to long-term investments such as mortgages that would still need to be met even if you were out of work. However, this type of insurance is getting much more difficult to obtain and can be very expensive.

"The best advice is to sit down with an independent financial advisor who will be able to assess which areas of your investments look most exposed. You may be able to move some of your long-term savings into different products that are currently offering good returns. However, you need to fully-understand and be aware of any penalties that can be imposed if you change a financial plan that you have in place.

"Each individual or family will have very different needs, which can only be assessed by consulting an independent financial advisor. Putting in place a sound financial footing for the future will provide peace of mind and future financial security. Once a plan is in place it is recommended that you review it with your financial advisor on an annual cycle to ensure that it continues to be on course to meet your financial, long-term goals."