Web designer gets money makeover
DESIGNER Rawan Aal-Issa has savings, but no investments after being burnt in a property trade – and wants to know the best way to plan for her future.
cashy called in the experts and asked Rupert Connor at Acuma Wealth Management to give her a money makeover. Here’s what Rawan, 29, told us about her personal situation, and Rupert’s advice:
I studied media and design at the American University, and have worked in the creative industries since I graduated in 2001. I was, until recently, a creative producer, but amid cutbacks my department was made redundant in April last year. I’m now working on projects on a freelance basis.
I’m single, don’t have any children and earn around AED 240,000 (£65,343) a year. I was born in the UAE: my parents moved here in 1977. I still live with my parents, in Dubai, and they pay the rent, electricity, for food, and my car service.
I have no life, income protection or critical illness insurances and don’t have a will, as I don’t own anything valuable to give away.
My main object is to save for emergencies – and the future. Neither of my parents is medically insured and both have a lot of health problems. Since I’m their only daughter still living at home, I feel responsible.
I also want to plan for my future. I hope to settle down and have children, but if – God forbid – the marriage breaks down, I want to survive financially. I’d like to own my own business one day, too.
I have savings of around AED 350,000 in the bank, which I don’t know what to do with. I tried investing in an apartment, but lost AED 150,000 as the owner took the money and ran away. I’m afraid of losing any more, so the money is dumped into my current account. I can’t earn interest on the money for religious reasons.
Being an Arab, our culture doesn’t have the concept of retirement or pension: you work until you grow old. I want to have a plan.
I’ve never taken financial advice: I feel that financial advisers talk to people with more money than me to play with.
For many people in the UAE, the economic crisis had a profound effect and it’s still not uncommon to hear of redundancies and to be in the same position as Rawan. She, luckily, had some savings to help her through what could have been a difficult time while searching for gainful employment.
Rawan should keep a spreadsheet on all her monthly outgoing expenditures and a log of receipts. Performing this simple task as a ritual is good practice for anyone wanting to keep on top of his or her finances. This way, you can keep a close eye on expenditure and see whether any cuts can be made.
If Rawan is afraid of her cash being at risk my advice is that she only keeps living expenses and some emergency funds in a UAE account – everything else should be sent offshore. This is due to the fact that your assets can be frozen at any point by your bank.
Rawan should seek advice on opening an offshore bank account to which most of her savings can be automatically sent.
Rawan is in the fortunate position of living with her parents, so has minimal expenses, and is not in any debt. She should set short, medium and long-term targets. Everyone should set strict financial goals and expectations for themselves.
Rawan should set up structured plans with specific goals in mind, such as pension planning. The idea behind a pension plan is to provide an income for life once the selected retirement date has arrived. I would suggest Rawan saves 15% of her earnings into a pension plan.
Rawan is interested in investing in a business. However, this can be high risk, especially with start-ups, so always thoroughly research before making a decision.
Moreover, you shouldn’t rely on business interests and property in retirement (as Rawan thinks she might) for immediate cash-flow as it may take some time to release the funds, unlike a pension pot, which can provide a liquid income immediately.
Rawan was bitten in the past when attempting to buy a property, but investment does not necessary mean you have to take risk with all of your money.
Any investment should be tailored to the individual’s tolerance to risk. If Rawan wants to take minimal risk then certain funds can be selected to provide this level of exposure, while still following Shariah-compliant law.
The key is to having a diversified portfolio. With this in mind, I would also suggest Rawan considers investing in property. She had a nasty experience, but conditions are changing for the better and I rue the day when the property market here is regulated.
When purchasing property never be emotional. Sometimes the best investment properties do not have the best views.
In addition, under no circumstances should anyone be without private medical insurance in this part of the world. Rawan should take advice on behalf of her parents to remedy this situation.
In summary, Rawan’s technique of saving and spending from one pot means her money is not working hard for her. There is no platform and no objectives set.
Rawan is wrong in thinking that she has too few assets to warrant seeking advice. She needs to take good, professional and qualified advice.
When researching who to use, ensure that the company you’re dealing with has the correct licenses in place and that the adviser is home qualified in financial planning.
It is always good to take a holistic approach when talking about your finances so that the adviser has all the information necessary to make sound recommendations. Once the foundations of any financial plan have been put in place, the key to success is to review it with your advisor on a regular basis.