Overspending on credit cards, lacking an emergency fund, not investing for the future, trying to keep up with the Joneses, and spending on too many weekend brunches are a few of the common mistakes committed by expats in the UAE when it comes to handling their personal finances.
“It's so easy to get caught up in the lifestyle here, with so many expats spending as if their income will never end and overstretching to keep up with people around them, rather than a more balanced intentional approach of enjoying their time here while also saving or investing for the future,” says Carol Glynn, a personal finance expert.
We asked experts to round up some of the biggest mistakes they see expats commit with their money in the Emirates.
Carol Glynn, founder of Conscious Finance Coaching
Not planning for the long term: Delaying retirement planning, property investment or pension contributions and focusing instead on short-term indulgence.
Keeping savings in low-interest accounts: Failing to seek out better interest rates means inflation quietly but quickly eats away at your perceived wealth.
No emergency fund: With job losses or visa changes, a lack of savings can mean sudden financial stress and debt.
Over-reliance on credit cards: Not understanding the impact of high credit card interest, and also not understanding the impact of not paying off your credit card balance in full every month.
Over-reliance on buy-now-pay-later schemes: I see this more and more, where people have so many BNPL arrangements, their monthly income is consumed by the payments and they don't understand how it happened as it crept up over time.
Elie Irani, member of Simply FI Index Investing and Financial Independence Facebook group
Trusting the wrong financial adviser: The vast majority of financial advisers are just sales brokers in disguise: they get hefty commissions for pushing expensive and unsuitable investment products that are riddled with hidden fees that can wipe away your returns over time. Learn to invest in a portfolio of low-cost exchange-traded funds (ETFs).
Investing without a plan: Many would invest in random stocks or ETFs with no plan whatsoever. Write down your financial goal, investment timeline (ie duration), asset allocation (ie the ratio of stocks to bonds in your portfolio), and your chosen investment funds or ETFs (and why).
Not diversifying your portfolio: Many make the classic mistakes of concentrating their investments in a single stock, sector or country. Diversify across companies, sectors and countries by investing in the global stock market. Moreover, diversify across asset classes, such as stocks and bonds. This can be easily achieved with two ETFs: a global stock market ETF and a global bond market ETF, which gives you instant diversification at a low cost.
Believing market forecasts: No one can reliably predict how the market, sectors or individual stocks will perform in the short term, and yet, financial analysts keep trying to push their forecasts about short-term market highs and lows. Don't get intimidated by financial forecasters promoting doom and gloom. Just stick to your investment plan.
Market timing: Attempting to use indicators to predict market moves and profit from them is a strategy that even professional investment managers fail at consistently. Remain invested at all times by buying and holding a broadly diversified index fund. Do not sell if you believe the market will go down. Do not stop your regular contributions if the market seems to be at an all-time high. Just stay the course and remember: it's not about timing the market, it's time in the market.
Chasing performance: Many investors fall into the trap of investing in what has been doing well lately and expecting this outperformance to continue. Picking investments based on their past performance is like trying to win the lottery by picking last week's winning numbers.
Allowing emotions to get in your way: Fear (panic selling when the market drops) and greed (taking unnecessary risks when the market is doing well) cause investors to abandon their strategy. Remember you are investing for the long term; therefore, stick to your investment strategy regardless of market conditions.
Alison Soltani, founder of Leap Savvy Savers
Lifestyle creep: Life is expensive in the UAE and many people don't plan for how costly relocating is. Further to that, it is also very easy to spend money in the UAE as credit is fairly accessible and with wealth quite often “on display”, it's all too easy to fall into the trap of spending either up to or beyond your means to sustain a certain lifestyle.
Not planning for the future: Many expatriates come from places where pension schemes are built into workplaces, so going to the UAE, making and implementing a robust retirement plan is key. It is also easy to delay setting up long-term investments as other urgent priorities are constantly cropping up and retirement can seem far away. However, it is so important to set aside some of your income for long-term savings and investments as soon as possible.
Lack of financial education: If you come from a place where pensions are usually provided by and set up by your employer, the world of investing can seem overwhelming. Learning about selecting a platform, investing funds, fees and strategies early on can help you avoid making costly mistakes.
Blair Hoover, founder, Choose Your Own Finance advisory
Cash flow blindness: The most common mistake I observe almost every expat make is not tracking their income and expenses. This error is closely followed by operating without any long-term financial plan in place − an issue easily solved by establishing an emergency fund, a sinking fund for planned expenses, and an investment fund for the future. This lack of structure often leads directly to the two most significant dangers expats in the UAE face.
High-interest credit card debt: Most people do not realise that a 3.99 per cent monthly interest rate compounds to 59.99 per cent over the course of a year, making minimum payments useless for reducing the debt.
High-cost financial products: The second danger hits when expats realise they need a plan and seek professional support. If they are not careful, they can end up paying for complex, high-cost financial products that give the salesperson a large commission but do little to grow their own wealth. Complex structures are a warning sign. Look for transparent cost structures and always verify before trusting anyone with your money. The SimplyFI Facebook group is a great place to get a free financial education from a non-profit community of regular people helping each other avoid these common pitfalls.
Emil McKenzie, financial planner, The Fry Group
Underestimating home country tax obligations: Even if you are moving to a country such as the UAE where you have the benefit of tax-free income and zero capital gains tax on assets, you should still be mindful of the tax obligations in your home country. It’s important to understand which of your assets may remain under the scope of your home country and speak to a tax specialist to understand your tax obligations. Furthermore, your property, pensions or investment income may still need to be declared in your home country even if living abroad.
Focusing purely on property as an investment: Holding property as an asset as part of a wider portfolio can be a sensible consideration. However, utilising this as the only growth strategy can cause you to suffer from lack of liquidity. There is also the risk of being too concentrated in one asset class when it comes to returns, which could cause you to be overexposed to the impact of a downturn in the market.
Ignoring currency risk: Even savvy investors sometimes forget that they may be earning money in dollars or dirhams but end up investing in sterling, as an example. This can lead to losses when the currency is converted back to the local currency for expenses. Investors may wish to consider investing in a denomination of currency which matches their requirements for spending.
Holding too much money in cash: You may wish to set aside immediately accessible, liquid assets in cash for emergencies and to take account of any short-term spending needs. Outside of this, if the money is being set aside for long-term saving, it is important to consider investing in assets that will appreciate in value in real terms (when compared to inflation).
