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19 March 2024

Earning Dh15,000 a month: How much should you save?

Published
By Sneha May Francis

We all aspire for a future that’s secure and debt-free, but not many of us are diligent and disciplined with our savings.

A good pay package and no tax-cuts don’t necessarily translate into big savings.

Rickson D’Souza, director of Pinnacle Insurance Brokers, has a plan to ensure expats aren’t distracted by a life of luxury and remain focused on their ultimate goal.

For an average earner of Dh15,000 per month, he works out the math for a debt-free future.

“Theoretically, if this person was living in any other part of the world, he would be paying 30 per cent of his income as taxes.

“A chunk that would go towards government-owned pension plans, social security, education funds, medical insurance and a couple of other areas.

“Since we live in a tax-free country, the aim should be to save that 30 per cent. And, it’s in our control,” he stresses.

“The minimum that needs to be put aside is about 30 to 35 per cent of our income.”

Thirty per cent of Dh15,000 is Dh4,500, which might not be enough for a property investment, but enough to create an “asset base”.

“You’ve got to first set aside a portion of the money towards life insurance, disability insurance, critical illness. The amount could vary.

“So, let’s say 10 per cent on your insurance plan, another 10 per cent stacked away as cash, and the remaining 10 per cent into some sort of medium to long-term regular savings plan. This way, you have a diversified portfolio, you could invest in equity, cash and you’ve got your insurance protecting you.”

Once the income grows, “you’ve got to ensure that you put away more money, so that it can take care of your bigger concerns over the years”.

Rickson stresses how education costs are not cheap. “An average child would spend around $120,000 over a period of four years, to get educated in US or Canada. That’s if you are not a US or Canadian citizen. So, you would have to start saving towards that even before your child is born!”

But, for those in this pay group, they shouldn’t “spread themselves too much. Don’t try and buy multiple properties, insurance, regular savings. Figure out what is priority.

“In my opinion, the first thing you’ve got to do is get the insurance sorted, especially if your asset base has not grown to a point where you can depend upon it. It’s boring, it’s not going to make you a lot of money, but if something went wrong, you have back-up.

“If you do invest in property by taking bank loans, you must factor in, what you will do if you lose your job, how easy is it for you to liquidate that asset. Property is something that you definitely have to have in your portfolio, but it’s got to be when you’ve sorted out the other loose ends.

“You can buy offshore investment portfolios from companies in the UAE. It’s a better way to buy coverage because whether you return to your home or not.”

As expats, Rickson believes, it’s often a struggle to look into different aspects during your annual 30-day trip home. The time might not be adequate to “meet with your banker, tenant, look at your property, pay your taxes”.

According to him, “if you live in Dubai, and intend on working here for a few years, then you need to consider buying insurance contracts here. It could be a more evolved product, and you have the advantage of approaching the agents whenever you want.

“And, the contracts will pay out, no matter which part of the world you live in. There are different tax implications on the money that comes out, but that’s going to be the case anyways.”

Note: The views of the expert quoted are his own and do not reflect any advice on part of Emirates 24|7. Readers are advised to carry out due diligence on their own financial planning and take independent action, if any, Emirates 24|7 will not be held liable for any impact arising out of this article.