The Covid-19 pandemic is taking an economic toll worldwide. We look at four scenarios that could be affecting you here in the UAE, from losing a job or taking a pay cut, to being a worker secure enough to carry on your financial life as usual or an entrepreneur shaving costs to sustain a business.
We asked seven experts their views on what people should do in these cases: personal finance guru Andrew Hallam (AH), author of Millionaire Expat; Ambareen Musa (AM), founder and chief executive of money comparison site Souqalmal.com; Steve Cronin (SC), founder of DeadSimpleSaving.com; Stuart Ritchie (SR), director of wealth advice at financial advisory AES International; Georgina Howard (GH), chartered financial planner at The Fry Group, which has a Dubai office; Nadine Mezher (NM), co-founder and chief marketing officer of UAE robo-adviser Sarwa; and Demos Kyprianou (DK), board member of UAE non-profit community SimplyFI.
If you lost your job
AH: This is like a farmer whose winter has arrived: they store reserves for the season so they can feed their families. Job losses are like surprise winters. At this point, people should be living off cash reserves – three to six months of living expenses. For some, that's going to be cash in a bank. For others, it might be accessible money in a short-term, bond market exchange-traded fund (ETF) – but only if the underlying bonds represent the currency from which they pay their bills. For example, a US ETF would be denominated in dollars, which the dirham tracks. This definitely wouldn't be the time to sell investments. Don't sell stocks during a downturn.
AM: If you have active debts, get in touch with your bank immediately. UAE banks have introduced free-of-charge repayment holidays for up to three months; interest-free and processing fee-free credit card instalment plans of up to six months; and a temporary increase in credit limits for eligible customers. But keep making the minimum payment on credit cards to avoid paying hefty penalties.
SC: If you worry about surviving the month, build a cashflow model tracking daily inflows, outflows and cash balance – that way you can predict problems in advance. If you have a cash buffer, you could accept a lower-paid job or help people for nothing. Now might be the time to go it alone with an online store, courses or tutoring. So many successful businesses start during tough times. If you can get through this being lean and mean, you can get through anything.
DK: Jobs are still being advertised; they are just a lot more competitive. I would ensure an emergency fund is in place first.
NM: If I had to imagine the worst-case scenario, I would start by cutting non-essential expenses, then work on a new idea to solve a current problem – as a mum, I can think of many.
If your salary has been reduced
AH: Prioritise needs in order of importance: food, health and shelter come first. If someone can cover those needs and they don't have an emergency fund, they should hunker down and add reserves.
AM: Repayment holidays and interest-free instalment plans are great, but you must also make big changes to your budget. All discretionary spending has to stop immediately. Create a budget surplus, so you can prepare not just for a rainy day, but a downpour. If you're a homeowner, one way to access extra cash is to refinance your mortgage. The extra funds could help you settle and consolidate other debts, such as car or personal loans. But this could be a double-edged sword – you are ultimately increasing your debt exposure.
SC: Audit expenses to see where you can chop big items or prevent small items – like deliveries – adding up. Focus on what gives you value and what is essential. Stockpile cash; now is not the time to invest in an off-plan property or start day-trading stocks. Plan financially for losing your job, so you are prepared if the worst happens.
GH: Plan any savings you have very carefully so that they last as long as possible. Seek advice from a qualified financial planning professional, who can look at your financial goals and advise on the best way to move forward.
NM: After cutting expenses, focus on what you can do after this is over. Once the economy bounces back, we need to be creative in keeping costs low and generating more income for the family.
DK: It could be worth downsizing lifestyle costs: for example, cheaper schools, a smaller place if your contract is ending soon and, of course, negotiating rent. Now is a good time to negotiate everything.
If your job is safe and you’re still being paid
AH: Build a cash reserve. Invest in a globally diversified portfolio of ETFs and add money every month or quarter. Investing is most dangerous when people perceive it to be safe, and safest when people perceive it to be dangerous.
SR: Buying in now, being patient and investing for the long-term is one of the greatest opportunities for your future wealth. Prices are low: equities are essentially on sale. Over the last 40 years, $10,000 invested in the S&P 500 would have returned $779,870. However, coming out of the market and missing the five best days would have reduced the returns to $504,911; missing the best 50 days would have returned $67,853. The best days are often in the short-term recovery – which you are bound to miss if you sell when markets are down and buy back when they are high.
GH: We recommend investing in a diversified portfolio with exposure to different asset classes, to help smooth out any peaks and troughs. Consider putting away money monthly as well as investing a lump sum. The monthly savings will 'pound-cost average', meaning they will invest at different levels each month. Avoid unnecessary insurance products that have lock-in periods or are expensive to get out of later on.
SC: Buy a global stock fund and a global bond fund rather than trying to be clever. If you have any debt with an interest rate over five per cent, or a house value dropping close to the size of your mortgage, pay it off.
NM: Make sure you get expert advice on how to navigate market volatility and understand your investing options. If you have a secure job, support the community: leave positive online reviews; order from local restaurants; buy from the small, local grocery store; pay for a membership that ensures your favourite places survive this.
AM: Social distancing is not a privilege everyone can afford. Tip food and grocery delivery guys, taxi drivers and others out risking their well-being generously. You can also donate meals through the Meals of Hope campaign run by Zomato, in collaboration with the Dubai Islamic Affairs and Charitable Activities Department (Iacad).
If you're a small-business owner
SC: Now is the time to make tough decisions. Is your business actually successful? If not, close it now that you have a good reason, before you go bankrupt. Failing businesses will devour money. If you can hold on to everyone, be an ark and protect your staff. If not, identify high-performing or essential staff and put others on unpaid leave or let them go. Support them any way you can: they may become important clients in the future, plus you want to hold yourself to high standards during this time.
NM: It has been a tough few days, if not weeks. How best to survive with minimal damage, while remaining ethical? As a start-up, you can look for creative ways to cut costs and hold on to spare cash, such as cutting monthly subscription tools. Follow #uaestartupsfightback to find free or discounted services – even free online gym sessions.
Major UAE banks are also offering relief packages. If you have a loan, check with your bank what measures are in place for small businesses, such as reduced fees, new finance facilities or a lower minimum capital requirement. Many government authorities are also offering discounts and waivers on fees or extensions for payments.
If you have redundant employees, register them on the new virtual labour market set up by the Ministry of Human Resources and Emiratisation (MoHRE). The entrepreneurial community is coming together: we can make it better for each other through this rough patch.