New Year’s resolutions are notoriously difficult to keep, but if you stick to the following 12 financial resolutions you should end the year wealthier, healthier and wiser:
1. Build a healthy future
New Year’s resolutions to quit smoking, cut out chocolate or party less are not just good for your health – they can be good for your finances as well. But only if you put the savings to good use by investing it for the future. If you trimmed just US$100 a month out of your everyday spending and invested it instead, after 20 years you would have nearly US$47,000, assuming 6 per cent growth after charges.
2. Draw up a financial plan
Everybody should have a financial plan, but too few of us get around to it, says David Hughes, the divisional manager for PIC (Middle East) in Dubai. “Whether you’re starting a family, buying a property, moving country or saving for retirement, the sooner you start planning the better.”
If you haven’t started your pension planning, 2014 is the year to do it, Mr Hughes adds: “Start by working out how much you spend today, then remove the items you won’t need after you stop working. This will show you how much income you need in retirement.”
If you need to take independent financial advice, make a resolution to find a good adviser this year.
3. Shrink your mortgage
Your mortgage is probably your biggest monthly expense, so get the best rate you can. Top deals start at 3.99 per cent for two years and 4.24 per cent for three years, says Warren Philliskirk, the associate director at Mortgage International Business Dubai. “Always check how much you will pay after the initial offer ends. Many banks entice customers with a low introductory rate, only to charge 7 per cent or more when that rate expires. Also check whether there are penalties for switching, some lenders charge as much as 5 per cent of your outstanding balance.”
You can also reduce your mortgage burden by paying down your debt ahead of schedule, say, giving you a cushion for when interest rates finally start rising, Mr Philliskirk adds. “It’s a great way of using your bonus.”
4. Tackle your debts
If you have run up debts, tackle them now before they run out of control. Make a resolution to draw up a monthly budget, curb your wilder spending and pay off your debts, starting with the most expensive first.
If you have several outstanding debts, such as car or personal loans, credit cards and an overdraft, consider rolling them into a consolidation loan, says Ambareen Musa at Souqalmal.com. “That should give you lower, more manageable monthly repayments, but don’t use this as an excuse to run up more debts, or you will just end up in deeper trouble.”
Watch out for hidden fees when refinancing. “You may have to pay a 1 per cent arrangement fee for processing the loan. Some banks also charge early repayment fees of 1 per cent, but others don’t, so shop around,” Mrs Musa says.
5. Get cheaper motor insurance
Do not just extend your car insurance policy at renewal, shop around to see if you can get a cheaper deal elsewhere. Checking the latest rates on a price comparison site could easily save you hundreds of dollars.
You can get a series of quotes within minutes by filling in just one online form, Mrs Musa says. “Your premium will vary according to factors such as the type and value of your car, driving experience, and previous claims.”
Don’t just go for the cheapest policy you find. “Make sure that the policy has everything you need, including extras such as off-road coverage,” she adds.
6. Take out life insurance
If you have a family or other financial dependents, resolve to protect them in case you die, says James Thomas, the regional director at Acuma Wealth Management in Dubai.
You should take life insurance for a minimum of four times your income, preferably a lot more than that, to give your family long-term protection. “Do the sums to work out how much coverage you need to secure your family’s lifestyle well into the future,” Mr Thomas says.
How much you pay for coverage depends on factors such as your age, health, nationality and whether you smoke.
As a rule of thumb, a 40-year old British man would pay about $22 a month for each $100,000 of coverage over a 20-year term, doubling to about $40 if he smoked (another good reason to quit).
7. Get a better credit card
With plenty of credit cards to choose from, make sure you get the best one for you, Mrs Musa says.
“ADIB Etihad Guest Visa Cards gives you guest miles every time you spend on Etihad Airways. ADIB also offers cards with up to 1 per cent cash back on all your retail purchases, and no annual fee for the first year.”
Citibank and Emirates Islamic offer credit cards with Skywards miles, which you can use for free tickets or upgrades.
The Standard Chartered Titanium Credit Card gives cash back on movies, school fees and grocery shopping.
The Citi Life Infinite Visa Credit Card offers a rewards programme, while Citibank World Privileges offers dinning and shopping discounts, and complimentary golf.
8. Boost your pension
If you do not save for your future, nobody will do it for you, says Chris Ferguson, the managing director for the UAE at Guardian Wealth Management. “If your employer will match any contributions you make to its workplace pension, contribute all you can to take full advantage.”
You should supplement this with a regular savings vehicle such as a personal pension plan from an insurance company, Mr Ferguson says.
Ever year you delay is a year wasted. If you invest $500 a month into a pension from age 30, you will have $709,000 in your pot by age 65, assuming 6 per cent a year growth after charges. If you start just one year later, you will have just $663,000, an incredible $46,000 less.
If you leave it five years, you will have just $503,000, an incredible $206,000 less. Your early contributions are most valuable because they have so much longer to grow in value.
9. Switch your savings account
Rates on cash have been dismal for years, so fight back by shopping around for a better rate.
If you don’t need the cash immediately, you can get a high return from a fixed-deposit account. Union National Bank, Citibank, Mashreq and Standard Chartered all offer accounts paying rates of between 3 per cent and 5 per cent, according to Souqalmal.com.
The ADIB Ghina Savings account gives you the chance to win Dh2 million every four months. As your savings grow, so do your chances of winning a prize.
10. Check your currency risk
Currency risk is a challenge for every expat, says Steve Gregory, the managing partner at the financial services company Holborn Assets in Dubai. “Most UAE expats have to juggle several currencies, including their home currency, the currency they are paid in, and the currency of the where they plan to retire.”
If you need to switch money between different currencies, you should take advantage of any sharp shifts in your favour to transfer money.
You also need to decide which currency you want your investment funds to be denominated in. This is most likely to be your country of retirement, although investing in a spread of global funds with exposure to different currencies can reduce risk.
11. Start inheritance planning
Too many people prefer not to think about planning their inheritance, says James Thomas at Acuma. "But if you don't do it, more of your hard-earned wealth could end up in the hands of the taxman, rather than your loved ones."
What counts is your country of domicile, rather than country of residence. “Even though you live in the UAE, you could still face an inheritance tax charge on your worldwide assets back home.”
Consider gifting some of your assets either directly to relatives or through a trust, Mr Thomas says. “This is a complex area and you may need specialist tax advice.”
12. Write your will
There is a simple reason for UAE expats to make a will, says Nita Maru, the founder of inheritance and succession specialists TWS Legal Consultant.
“Where there is no will in place, UAE courts will adhere to Sharia. So if you die intestate, the local courts will distribute your estate in fixed shares according to … Sharia. While this may work for some, it may not be right for many.”
All personal assets, including bank accounts, are frozen until liabilities had been discharged, she says. “A wife who has children will qualify for only one-eighth of the estate and, without a will or estate planning in place, this distribution will be applied automatically.”
Make your will sooner rather than later. “Living and working in the Middle East could turn into a financial disaster in the event of unplanned death,” Ms Maru adds.
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