Moving to the UAE? Here’s how to set yourself up for financial success!

Congratulations! You got the job of your dreams in the beautiful United Arab Emirates. Your friends have been talking up its charms for years, and you finally took the plunge and applied for the job on #LinkedIn. You are on your way right now, and you cannot wait!

The tax-free salary is something you are really looking forward to, as well as the lifestyle that your friends seem to be able to afford so effortlessly – the travel to exotic destinations, the wonderful vacations, the unbelievable branded accessories. You are absolutely dying to get in.

Before you land, though, here are a few tips that will help keep you sane and in control, and make sure that your UAE dream sojourn does not turn in to a nightmare.

1. Resist the temptation to “Keep up with the Joneses”.

When you arrive in the UAE, you will see amazing real estate developments that will literally blow your mind. Your friends may live on the Palm, for example, and drive expensive cars that you could not imagine driving back home. Fight the temptation to sign up for these things until you know exactly what the costs involved are. Your salary, while it may be substantial, will vanish fast unless you watch your commitments, especially at the outset. Once you are committed, your options are limited. Rent on a short-term lease if you must, or even crash with a friend until you figure out where you actually want to live (and more importantly, where you can afford to live).

2. Set financial & savings goals.

Once your visa is stamped, and your first salary is deposited into a “salary account” that your office HR or Admin people will help you set up, figure out where you actually want to bank, and what you want to achieve from a financial standpoint. Set up a secondary bank account, and start transferring 10% of your salary in to that account – automatic deduction, first of the month. Plan as though you only receive 90% of your salary.

3. Be cautious with credit cards.

If your salary level is a decent one, you will receive a great many calls for credit cards. You may not be used to the intrusive nature of these calls or dealing with the type of people calling, and might be tempted to take on some “free-for-life” credit cards to help someone out. DON’T DO IT. You are not helping anyone, least of all yourself, by taking on liabilities. Instead, do some research on comparison sites to ensure that you get the card that offers you the benefits that you will really use, not something that is “nice-to-have”. Remember, a credit card is not a “rainy-day friend”. On a related note, do not accept huge credit limits on your new card(s), because while they might give you an ego-boost in the short-run, they will certainly cause you problems in the mid-to-long-term.

4. Understand the concept of a Debt-Burden-Ratio (DBR).

This is a “uniquely UAE” calculation and you need to be able to calculate and manage your DBR proactively otherwise you can get in to all sorts of trouble. Here is an illustration to help you understand how to calculate your DBR if you have a salary of AED 40,000, and the following monthly expenses:

a. Car Loan: AED 1,800 per month.

b. Credit Card 1. Available limit: AED 50,000, average utilization: AED 3,000 per month.

c. Credit Card 2. Available limit: AED 60,000, average utilization: AED 3,000 per month.

d. Mortgage. AED 10,500 per month.

e. Overdraft facility. Available limit: AED 30,000, average utilization: AED 0 per month.

Your “Debt Burden” – those costs that would be included in any calculation of your outstanding recurring debts - is calculated as follows:

a. Car Loan. AED 1,800 – Included in DBR calculation.

b. Credit cards. 5% of the credit limit on all your cards combined would be included in the DBR calculation. In this example, 5% of AED 110,000 is added to the calculation of your Debt Burden – AED 5,500.

c. Mortgage. AED 10,500 – Included in DBR calculation.

d. Overdraft Facility. 2% of the available limit of AED 30,000 will be added to the calculation of your Debt Burden (it may vary slightly from institution to institution) – AED 600.

Your Total Debt Burden: AED 1,800 + 5,500 + 10,500 + 600 = AED 18,400.  

Now, if we divide your monthly debt burden – AED 18,400 – by your income – AED 40,000 – we can calculate your DBR at 46%. This is fine, although it is approaching the limit of 50% set by the Central Bank. If your salary decreases for any reason, or your expenses rise, you could face a situation in which banks refuse to grant you further credit. Monitor your DBR from day 1, and you will be fine.

5. Credit reporting is a thing in the UAE!

What does this mean? Well, in a nutshell, it means that you need to live within your means! This may sound simple, but many expats live life in the UAE as though they are on vacation from reality. They live in homes that they cannot afford, drive cars that are far more expensive than makes sense, and generally live lifestyles that are beyond their reach. If they lived like this back home, they would find themselves on the streets, broke and with shot credit to boot. Now that credit reporting is being widely used by banks as an assessment tool in the UAE, the chances of getting in too deep are slim, but the responsibility is still on you to manage your credit well. Enjoy life, by all means – but do it sensibly. Understand that the old option of “packing it in” and fleeing to the homeland with a couple of suitcases if things went bad is not really an option any more. If you leave outstanding debts or other commitments, they will show up on your credit report. Believe me when I say this – your bank back home will want a copy of that report at some point, and it will be sooner rather than later.

So, keep yourself grounded from Day 1. You know that the old adage “there is no such thing as a free lunch” is true, and carrying that analogy forward, understand the downsides of biting off more than you can chew. Keep it real and enjoy your UAE sojourn!

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While Omar does work for the Credit Bureau, the views mentioned above are entirely his own and do not reflect the views of the Bureau in any way, shape or form. If you like his writing style, please feel free to buy his very short but very interesting book on Branding, available here: https://bit.ly/BuildingBrandYOU