Why are UAE expats failing to save enough?

The UAE labour force is dominated by foreign workers who are attracted by the prospect of earning higher, tax-free salaries. But does this promising economic environment mean that the UAE’s expats are successfully securing their financial futures? Not quite.   

A 2016-2018 McKinsey survey of UAE’s employed residents found that 59%were not optimistic about their household economy, with 72% stating that they live paycheck to paycheck.

Here are a few reasons why this could be happening.

Due to the high cost of living, saving is relegated as an activity for the future.  

A major reason for poor saving habits among expats is the simple fact that it’s expensive to live in the UAE, with rent demanding a sizable portion of most salaried people’s paychecks. The McKinsey survey found that 66% of respondents are finding it harder to make ends meet than a year ago. It can be concluded then that day-to-day expenditures prevent expats from allocating money to an emergency savings or a retirement fund. Expats also often have extra expenses such as pricey trips abroad or debt to pay down in the UAE or back home.

There is also a lack of understanding about the necessity of saving. 

In a recent survey published in Ministry of Interior magazine‘999’, one of the major reasons that expats cited for not saving was that retirement was in the distant future and they did not need to prepare for itnow. Furthermore, 13% of the respondents of a survey by yallacompare.com said they believe life is too short to save. In the McKinsey survey, 58% of respondents stated that they do not make efforts to cut back on their spending and 52% said that they do not delay purchases in order to save money.

Expats are succumbing to consumerism and their spending habits are guided by a desire to maintain a luxury lifestyle.

The UAE’s many temptations to splurge, such as its numerous malls, fine dining options, local attractions and nearby travel destinations, is a recipe for misspent wealth. The country ranked as the fifth highest consumer of luxury goods in HSBC’s 2010 Expat Explorer Survey for Emerging Markets, which found that 61% of expats said they were saving less than they were in their home country.

These statistics suggest that the UAE’s expats are either struggling to make ends meet or overindulging in the transitory benefits of an improved standard of living. But the poor saving trend among expats underscores the worrying reality that their long-term financial goals are falling by the wayside.

Here’s how expats can remedy the situation.

Expats should practice financial discipline and carefully plan their expenses.

Creating and sticking to a budget, which lists income against expenses, is the foundation of financial wellness. Allocating portions of your income to specific expense categories gives you a clear picture of where your money is needed and keeps you from overspending. Another key element of managing money is avoiding credit card debt by making timely payments in full. 

Save before you spend.

A key element of an efficient budget is making a monthly deposit into some type of savings instrument, account, or investment. Confused about how much to save? A popular rule of thumb is the 50-20-30 Rule i.e., 50% of your income goes towards living expenses such as rent and groceries; 20% towards savings for your long-term financial goals like buying a house or retirement; and 30% towards other spending, including clothing, outings and travel. Individuals can tweak the percentages as their circumstances change. It’s recommended to save more as one advances in their career to meet the expenses and financial liabilities that increase with age.

Study the long-term financial products available andengage appropriately qualified, regulated companies to advise you in your financial planning. 

Once your finances are organised, you’ll have money available to ‘put away’ for the future. It’s best to speak with a qualified financial professional to understand the market before purchasing any financial product. For example, they can explain how insurance plans are an important way of ensuring that your family’s financial security is protected against unforeseen circumstances like accidents, critical illness or death. Similarly, they can discuss pension funds with you so that you can see how even small deposits from the start of your career become a sizable amount that you can live off in your retirement.

As your wealth increases, it’s doubly important for expats to have a trusted financial advisor who will help them achieve their financial goals. Before selecting a financial advisor, expats should evaluate their credentials (their education, experience in finance, certifications and licenses), business practices (whether they work for a fee or earn via commission) and ethics. It’s also a good practice to ask for written documentation for all important information.

At Continental, we’ve earned a reputation for putting our clients’ interests at the forefront of everything we do. From planning and product selection, to final purchase and aftercare, we want our clients to feel secure in their financial future and make the most of their time working in the UAE. If you’re ready to talk about building a better, more secure financial life, contact us at 800 242.