We often see articles on the need to save for retirement and how we will be short if we do not save money as soon as possible in our working lives. While these are important points to consider, with an increasingly young population moving to the expensive lifestyle jurisdiction of the UAE, it can be difficult to stay afloat and solvent – let alone save money for the future.
In fact the most financially challenging period of your life is not retirement, it is actually early on in your career.
At this life stage, your salary is still probably low, but you have the longest list of expenses: work clothes, mobile phone bills, your first home furnishings, cars, weddings, rent – need I go on? You probably don’t have enough money to pay for all of that at once, unless your parents have set you up very well or you are a junior investment banker.
Most people have to make choices with their limited amount of disposable income. Here is a rough priorities list for newbies to the UAE who have shopping lists that are bigger than their salaries can stretch: First, save on rent costs by choosing a life that is sustainable rather than unsustainable. When young, you can cope on roughing it a bit. Forget living in the nicest pad in town when you are starting out. If you have been a student, live a little longer like this by choosing a less expensive area or opting for a studio over a one-bedroom apartment. A spare room eats up your spare cash that could be spent more wisely securing your future. Invest in items that will improve your lifetime earning power, such as a good interview suit, an advanced degree such as an MBA or relevant professional qualifications and a laptop to apply for jobs. A Kindle for your ever-important reading on the go would also be useful. Save first, not last. In the UAE, it is up to you what you do with your money as you do not have forced savings or pension schemes like in many homeland countries. If your employer matches any savings contributions then ensure that you maximise the free money they are effectively giving you and max out your matched contributions. If your employer has a share save scheme, like many multinationals do here, then discounted shares are also a form of money for nothing. The discount is the free element, and once the shares are owned you can make choices as to whether to keep them or not. Pay off credit card balances immediately as they become due. It is sensible to use a credit card in the UAE as the air miles or rewards you collect will help pay for flights home. But credit cards used as the issuers intend are incredibly expensive and can really harm long-term finances. Paying minimum payments on credit cards is not a way of reducing the balance, it is a surefire way of paying more than 20 per cent annual interest rates for years to come. Abandon all other extra savings and spending until you’ve paid these toxic debts off. Save for a home down payment, probably on a property in your home nation. Home ownership is still a smart way to build equity over a lifetime. Trying to build a property portfolio is not for everyone and requires a lot of time and effort, but buying a home aligning to your home economy and currency is never a crazy investment. Pay down high-interest student loans. If you had private loans with interest rates above 8 per cent, find out whether you can refinance them at a lower rate. If not, consider paying extra principal to reduce that costly debt more quickly. Don’t hurry to pay off lower-interest student loans – there are better places to put extra cash. Buy experiences over being a consumer. If you have extra cash available after covering the essentials, take advantage of the local geography. You will more than likely leave the Middle East one day, so take memories with you and buy possessions when you eventually settle. Take road trips with friends. Spend money on things that are cheaper while living here than elsewhere such as regional travel. Focus your finances on making memories, not acquiring consumer goods – academic research shows that you get more happiness by doing this.
Chris Ferguson is a director of Credence International, a financial planning and wealth management company based in Dubai