Lifestyle creep to poor paperwork: Common financial mistakes made by UAE expats

The UAE offers higher take-home pay and the opportunity to save more quickly. Chris Whiteoak / The National

Moving to the UAE can be transformative for your finances, offering higher take-home pay, generous benefits, and the opportunity to save more quickly. However, it can also be a minefield.

With the transition to new currencies, different rules and the allure of a lifestyle you might not have considered back home, small missteps can become expensive habits. For instance, understanding the nuances of gratuity payments and avoiding common pitfalls, such as overcommitting to luxury living, is crucial.

Below are some instances where expats commonly go wrong:

Customers should look beyond bonuses while transferring salaries to UAE banks

Read More

Lifestyle creep

Lifestyle creep, or raising your spending as your income increases, is a common occurrence. Many expats get caught up in the city’s energy, and the issue isn’t just about enjoying yourself; it’s letting fixed commitments, such as rent, cars, subscriptions and schools, take over your future.

A simple rule: keep your fixed, unavoidable costs low enough to leave room for saving and investing, then let lifestyle spending fit within what’s left.

If you receive a promotion or bonus, increase your savings rate before raising your spending.

Currency mismatch

Being paid in UAE dirhams while your long-term goals are in British pounds or another currency can quietly erode your plans. Decide how much is required for your long-term goals in the local currency, such as mortgages, future school fees or retirement planning, and build a strategy that reflects these.

You don’t need to hedge every penny, but you should avoid putting everything in one currency by accident.

Not having tidy paperwork

Cross-border families need tidy paperwork. Ensure you have valid wills that reflect your current residence and home country, that your beneficiaries are up to date on your policies, and that your loved ones are aware of where key documents are stored.

To confidently protect your family in the UAE, consider using the DIFC Wills Service or other legal services that ensure your will is valid according to local laws. This is dull work that prevents very stressful situations for your beneficiaries.

Tax timing across borders

“No income tax” does not mean “no rules anywhere”. If you’re selling assets, exercising share options or drawing pensions, the order and timing can change the tax outcome.

Before entering into large transactions, understand how the rules interact between countries and select the sequence accordingly.

For accurate cross-border tax advice, consult reputable sources such as qualified tax advisers.

You can avoid these mistakes by starting with the basics.

Build a one-month 'peace-of-mind' fund

Work out your monthly cost of living. Say it's Dh15,000 ($4,084) , keep that amount in a separate bank account. This is not your long-term emergency fund; it's a small buffer to prevent day-to-day wobbles from becoming credit card debt.

A suitable option could be a basic savings account or a current account provided by many UAE banks, which often comes with low or no maintenance fees.

Imagine this: It's a Thursday evening, and you come home to a fridge that has suddenly stopped working, the same week school fees are due. You use your peace of mind fund to purchase a new fridge, that’s why it’s there! No frantic phone calls or last-minute loans, just a simple and immediate solution.

Clear high-interest debt

Before you chase investment returns, pay off anything that charges high interest: typically credit cards, buy-now-pay-later plans, or personal loans.

The UAE has specific financial regulations, such as severe penalties for bounced cheques and stern consequences for loan defaults. These can escalate quickly, making it crucial to address debts proactively.

Choose a repayment method and stick to it. Negotiate rates down where possible, and automate payments so progress can happen without relying on daily willpower.

Build a true emergency fund

Once high-interest debt is gone, grow your peace-of-mind fund into a safety net. Three months is a sensible minimum, or six months if your job is less stable or you support family abroad. Keep it accessible and simple, like a cash account you won't use for holidays.

If you have future expenses in another currency, consider holding part of the fund in that currency to avoid unpleasant exchange rate surprises.

Only then, invest

Start with the basics before focusing on growth. Investing before you complete the first three steps is like going on a desert drive and not deflating your tires before entering the sand. It could possibly leave you in a sticky situation.

Choose help carefully

The right financial planner can accelerate everything above; the wrong one can undo it. Look for someone properly qualified (at least Level 4 or equivalent), who is transparent about fees, and willing to demonstrate how recommendations align with your goals.

Ask about their licence, continuing review schedule and how they handle currency and cross-border issues. If those answers aren’t clear, keep looking.

None of this is flashy, but it’s what separates having your money work for you from having your lifestyle quietly work against you.

Alex Salter is head of commercial development and senior financial planner at Metis, a DIFC-based wealth adviser