Consumer debt is a major problem in the UAE, but you can steer clear of it with these simple tips.
Beautiful clear skies (with the odd recent exception), tax free living and amazing cultural inclusion, what isn’t there to love about living and working in the UAE?
And before you all shout in unison “traffic” please bear in mind there aren’t many major cities globally that do not suffer from congestion of one sort or another. Cost of living is also comparative and there are a number of studies that show those who choose the expat lifestyle often return home with less than they arrived with, but why is that? In a word, habit.
These habits can be broken down thus:
• Daily coffee
• Endless consumerism
• Keeping up with the neighbours
• Lack of discipline / financial knowledge
Unpaid credit card balances, car loans and other forms of personal borrowings continue to hound consumers in the UAE, with total debt levels rising by 7.5 per cent over the past year, Gulf News reported on 17 August. The average resident in the country now carries a debt burden worth Dh42,600.
In no particular order, a daily latte from one of the major chains is going to set you back $1,000 over a normal five-day week, 48 week year. Do you really need that V8, 5.7L bi-turbo whizz bang, 0-60 in a blink of an eye, when stuck in nose to tail traffic? What does the latest phone, tablet, TV do that the previous one couldn’t and being honest with yourself, can you actual figure out how to use all of the functionality? OK, that point was directed at me for I’m technically incompetent.
As for lack of financial knowledge, well I’m sorry there really is no excuse. Even if you have reservations about using the services of a properly qualified financial adviser, you owe it to yourself to at least read about the subject. In my opinion, “Rich dad, poor Dad” by Robert Kiyosaki should be taught in school and made part of the curriculum. Warren Buffett sums it up brilliantly, “if you don’t find a way to earn while you sleep, you’ll work till you die.”
Right, so what are you going to do about it?
1. ‘Cash is king’ so start the envelope system
This isn’t new, your grandparents almost certainly used this oh so simple system. Many (many) years ago as a kid, my grandparents had envelopes kept in the larder (only rich people had a refrigerator back then). Each was labelled with an objective whether that be the weekly rent, electricity, food, clothing etc. If the electricity bill was higher that week and there was insufficient in the envelope, they would dip into the entertainment one. What this meant in practice is that everything was budgeted for. No interest free loans or credit cards to call upon and if you couldn’t afford it, you waited until you could. At least this way, you were able to ascertain whether you actually wanted or more likely needed that item as you have plenty of time to think about it.
2. Pay yourself
Change your habit and prioritise you as the most important person to pay first. What do I mean by that? Well as soon as you get paid, get into the habit of putting aside a percentage of your income for you. This will vary depending upon your age. Someone in their 20’s should look at 15 – 20 per cent while someone in their 50’s should be looking at 25-30%.
Impossible you say, but is it really? Just missing that one coffee a day will save you 2 per cent of your Dh30,000 salary. One brunch or game of golf less a month is another 2 per cent. Making a packed lunch rather than eating out is another 5 per cent. Once you have paid yourself, the rest can be spent on living expenses and having fun, secure in the knowledge you have started to build financial security and independence.
3. Make more money
You probably have more skills and talent than you give yourself credit for, but if not, you have a desire to work. Turn your pastime into a second income or even clean cars if you aren’t a talented baker or IT expert.
4. Manage your expectations
It is not realistic to live the sparkling grape lifestyle on hop income. That is not to say you cannot aspire, but equally it means that getting into and staying in debt to “live a dream” will only last until the nightmare of repaying debts comes home to roost. A Porsche may well be your dream car, but do you actually need to buy one, or could you rent one for a week and avoid the headache of ownership.
5. Avoid plastic
Either don’t use credit cards, or if absolutely necessary, make sure you pay off the balance each and every month. It is so easy to get into a spiral of debt and remember, the banks aren’t your friend. They make a profit by letting you get into debt and keeping you there.
6. Peer support
Solicit support from friends and relatives. They will give you the encouragement needed to keep focused on your objectives and share in your achievements.