Most expats come to the UAE enticed by the zero income tax policy, a better compensation package than the home country and the possibility of better prospects to save… reasons enough to make one want to move.
Once we touch down here, we also get tempted by the lavish lifestyle that is attractive enough to make us spend more than we can afford, to take up a waterfront house, an SUV for an individual or a couple and the staycations and brunches that make weekends costly.
The result is a big black hole in our monthly budget and a clear wipeout of the intentions we initially moved here for.
To avoid spending the last dirham we earn and keeping the big picture in mind, any financial expert worth her salt will advise to budget your money wisely and then stick to it.
The ideal way is to break down your expenses into fixed costs (rent, utility, transport etc.), financial goals (saving for a house, recurring deposit, retirement fund) and flexible spending (socialising, entertainment, upgrades, travelling etc.)
While the first two don’t give much scope of playing around with your money, the third component does and if there are changes to your salary, you can adjust expenses in the third component first so that you can keep up with the other two.
Gemma Frankland, senior financial consultant, independent wealth management and tax planning for expats in the Mena, breaks down an individual’s salary into three equal parts to live a decent life in the UAE – the fixed, the consumer side and the financial goals.
“Rent or mortgage plus utility bills (fixed costs) usually take up a third of a person or couple’s salary. Any more, and they are probably overstretching.
“Another third is usually taken up for food and socialising. Although single people and families have different lifestyle choices, the percentage of salary allocated to this ‘consumer’ side is generally similar. With the last third of salary, I look at how I can help them achieve the goals we mapped out at the start,” she tells Emirates 24|7.
Frankland charts out a working example to give you a rough idea of how your budget should look like.
John is single, no dependents, 32 years old, and earns Dh440,000 per year.
His rent and bills for a 2-bed Marina apartment are Dh145,000
Each month, he spends:
Dh1,000 on groceries
Dh1,000 on takeaways
Dh1,000 on cleaners and laundrette bills
Dh4,500 on socialising, going out and playing golf
Dh4,700 set aside for holidays
This totals to Dh146,400 per year
With his remaining Dh148,600, he saves half into cash towards a deposit for a property he plans on buying in three years, a quarter into a cash account for emergencies and a quarter into structured savings for his retirement.
“If either a family or individual are spending more than a third on their property, they're unlikely to save enough towards retirement. If you start saving 10 per cent of your salary at age 25, you might just be ‘ok’ at normal retirement age of 65,” she adds further underlining the importance of the corpus that will come in handy later on in life.
Some experts also say you could allocate about 50 per cent of your salary towards the fixed costs, 20 per cent to financial plans and 30 per cent to flexible costs.
This budget format can be adapted and changed with your salary levels and your personal circumstances. If your saving requirements are more, then, the flexible components of takeaways and holidays can easily be done away with so that your primary goals are met.
If you have school-going children, then you may have to move to a cheaper locale and not live in Marina to accommodate school fee in the fixed cost. If this amount is paid for by your company, then you will be more comfortable.
You may have to cut down on your consumer side to accommodate your child’s as well. You will have to tinker it so that you can maintain the allocation to all three components.
The most important thing about budgeting is keeping your goals in mind.
“When I am working with clients, I literally draw out a financial roadmap with them to look at short-, medium- and long-term goals to start with.
"For example, short term might be building up a safety net fund, or funding a special purchase. Medium is often purchasing a property and funding children’s education. Long-term is retirement,” says Frankland.