Navigating your finances as an expatriate in the UAE can present unique challenges, particularly when considering potential fluctuations in employment or income. Experiencing financial hardship and accumulating debt can unfortunately have a significant impact on your overall well-being.
Therefore, to safeguard your future financial stability while living in the UAE, it’s generally advisable to avoid incurring debt. Let’s discuss some strategies and approaches that can help you achieve this goal and maintain a secure financial footing during your time here.
Ways to avoid debt
Below are the ways you can avoid debt in the UAE.
- Management of Debt
- Preparing Budget
- Way of living
- Reduce expenses
- Spend smart
- Savings account
- Investment
- Careful & Cautious
- Financial expert advise
- Timely repayment
- Management of Debt
It’s important to remember that while loans and credit cards can be useful financial tools when handled responsibly, accumulating too much debt can lead to significant financial difficulties. One key metric to consider in managing your debt is the Debt-Burden Ratio (DBR). This ratio represents the percentage of your monthly income that goes towards repaying your debts.
Understanding the DBR can provide valuable insight into your financial health. For example, in the UAE, there is a legal upper limit of 50% for the DBR. This means that if your monthly income is AED 20,000, your total debt repayments should not exceed AED 10,000. However, for greater financial flexibility and peace of mind, it is generally advisable to keep your DBR well below this legal limit, ideally under 30%. Maintaining a lower DBR provides a greater buffer for unexpected expenses and allows for more discretionary spending and savings.
Adopting a financially conservative approach is a proactive way to avoid excessive debt and build resilience against unforeseen financial challenges. Making consistent and careful financial decisions over time is fundamental to preserving good financial health and preventing the burden of high debt from impacting your life.
- Preparing Budget
Budgeting is a helpful tool for financial management. Saving a portion of your consistent income monthly builds financial security.
Start by documenting essential monthly expenses to understand where your money goes and identify potential savings. Consider setting spending limits for non-essential items. For unexpected expenses, temporarily reduce discretionary spending.
Remember that cost of living varies by location, impacting your budget needs. Consider these regional differences to create a realistic budget.
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- Way of Living
The United Arab Emirates presents a remarkable selection of premium experiences, including exceptional dining and upscale retail opportunities, notably in dynamic urban centers such as Dubai and Abu Dhabi. Given such allure, the temptation to exceed one’s budget is certainly understandable. Nevertheless, maintaining adherence to your financial plan is important for sound fiscal management, notwithstanding the numerous appealing choices available.
A pragmatic strategy to assist in managing expenditures effectively could involve prioritizing the use of cash for transactions whenever feasible and perhaps exercising restraint in the utilization of credit cards. Over-reliance on credit facilities can occasionally contribute to financial challenges.
- Reduce expenses
The UAE offers a fantastic array of high-end experiences, from world-class dining to luxury shopping, particularly in vibrant cities like Dubai and Abu Dhabi. It’s understandable how easily one could be tempted to overspend amidst such glamour. However, it’s important for responsible financial management to adhere to your budget, despite the many enticing options available.
One practical approach to help stay on track with your spending could be to primarily use cash for your purchases whenever possible, and perhaps limit reliance on credit cards. Over-dependence on credit can sometimes lead to financial difficulties.
- Spend Smart
Spending smartly plays a significant role in avoiding debt burden if you cannot control purchasing practices for new products and services. Before any new acquisitions are made, be careful to evaluate whether the product or service in question offers truly necessary functionality for your work.
It’s important to thoughtfully consider each potential purchase, as even seemingly small, unwanted expenses can accumulate quickly and impact our overall budget. By ensuring that every expenditure provides essential value and supports our core objectives, we can maintain financial efficiency and make the best use of our resources. Keep this in mind as you plan for any upcoming needs.
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- Savings account
Opening a savings account with any of the banking institutions. Let your primary goal for this account be to establish a reliable emergency fund, and therefore, keep focus on a savings plan that offers both flexibility in accessing funds when needed and provides a competitive high-interest rate to help savings grow over time.
As you will be a resident of the UAE, seek a savings solution that will provide you with financial security and help you avoid incurring debt in unforeseen circumstances. Ask the bank for detailed information on the various savings account options available. Find out about the interest rates offered for each option, including whether these are fixed or variable and how frequently the interest is compounded and credited. Furthermore, get clarity on details on the minimum balance requirements to open and maintain each type of account, and a comprehensive overview of any associated terms and conditions, including any potential fees for withdrawals or other transactions
- Investment
Investments are the best way to earn returns in the long run or short run. Do good research and invest either in the short run or long run but get into the habit of investing. Regarding your search for a high-interest savings account, if you are encountering difficulties, you might explore alternative investments such as mutual funds or gold for potential long-term growth. This is a common strategy in places like the UAE for debt management and wealth accumulation.
- Careful & Cautious
Be aware of investment offers that promise rapid and substantial returns, as these are frequently deceptive.
Schemes such as network marketing and pyramid schemes are frequently disguised as legitimate investment opportunities but often rely on recruiting new members rather than actual product sales or viable returns. These structures are inherently unsustainable and can lead to significant financial losses for participants. Therefore, it is important to be wary of such models.
We urge you to manage your finances with prudence and seek advice from trusted and regulated financial professionals when considering investment opportunities.
- Financial expert advise
For those struggling with finances, consider seeking guidance from a financial expert. Financial literacy seminars can also provide valuable skills. For investment advice, your bank may be a helpful resource.
UAE residents facing debt issues can find free consultations and workshops at the Ministry of Community Development (MoCD).
- Timely repayment
If you have debts then to avoid further debt in the UAE, monitor your pending payments and begin repayment if these amounts are increasing.
Consider small changes like finding used cars, phones or TVs and reducing how often you eat out to save money. Sell unused items and repay debt on time to avoid falling into debt trap. Talk to your lender and find out ways to over reduce your debt faster.
Take away
These tips should help you manage your finances and avoid debt in the UAE. By taking proactive steps, you can maintain a healthy financial standing.
However, if you encounter financial difficulties, remember that solutions may be available. Reduce your expenses, talk to your family for support, assess your financial situation and explore all the options available to manage your debt.
About the author
Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It's a commercial mortgage banking company. He has a "Doctoral Degree in Commerce" and two master's degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.
